By Jim Butler and the Global Hospitality Group®
Hotel Lawyers | Authors of www.HotelLawBlog.com
17 August 2011
Tips from the Hotel Lending Lawyer: Hotel loan problems and hotel loan document issues are best dealt with at the loan origination. Do you know these fundamentals about your hotel loan documents dealing with hotel management agreements (HMAs) and hotel franchise agreements? There is a long list of things every hotel lender should take into account before making a loan so that it will be protected when a default occurs -- much less a foreclosure. But few considerations are as important as dealing with issues raised by HMAs and hotel franchises.
Over the years, we have counseled hotel developers, owners and lenders as they try to fix bad hotel deals and repair bad hotels loans. Often, their problems could have been avoided if experienced hotel advisors had reviewed the necessary documents with a practiced eye, connecting the dots and filling in the blanks before the loan was underwritten.
Hotel lending experience is the key
Lenders need hotel-specific experience -- not just real estate experience -- because, as my partner Guy Maisnik writes in his article below, "You don't know what you don't know." And what you don't know can cost you a bundle.
Because a hotel's operating business is inextricably intertwined with single-purpose real estate, the borrower's financial obligations are exceedingly complex. We have written other blogs about why hotel lending is different from other kinds of real estate lending, that you may want to read (see, Why hotel lending is different and 8 pitfalls of hotel lending and how to avoid them).
Guy has more than three decades experience in hotel and commercial real estate finance and has recently assisted 3 major lenders in revising and structuring their hotel lending programs and documentation, including their hotel construction lending. In this eye-opening series of articles, Guy discusses how hotel lenders often find unpleasant surprises with hotel loans when they don't get experienced hotel counsel to prepare their loan documents. And real estate lending experience is not hotel lending experience!
Please see the links at the end of this article for other articles in the "What every hotel lender needs to know" series.