Money provided by a hotel operator or hotel “flag” to a hotel owner in order to secure a hotel management or franchise agreement at a hotel property. In highly competitive hotel markets, where operators are looking to get a foothold or expand their brand, operators may use key money as one negotiating tool and will compensate the hotel owner as part of the agreement.

Key money is especially relevant in hotel development projects where risks are particularly high and lenders may be much more conservative for this risky asset class.