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Hospitality Lawyers: Conditions for hotel industry “RESET” may be coming into alignment

9 July 2009

This is one of many articles on the subject of “troubled hotel loans – workouts, bankruptcies & receiverships” in the rich library at www.HotelLawBlog.com.

Hospitality Lawyers with some perspective on recent developments.

My friend Steve Van at Prism Hotels has a great Hotel Default Blog. I you haven’t seen it, you should take a look. His most recent article (“The Sky is Really Falling”) sparked some perspective on whether the hotel industry is finally reaching a critical RESET point we have been talking about on www.HotelLawBlog.com for months. Here are the latest thoughts.


Is the “RESET” at hand?

The hotel industry will not get better until we have a complete RESET, but maybe the conditions for that may finally moving into place. Here are the latest indicators:

  1. The last optimist died. On July 7, 2009) Smith Travel Research threw in the towel on their formerly “optimistic” forecast and have adopted a “bleak picture” forecast for 2009, and continuing deterioration in 2010 for all three industry benchmarks (occupancy, average daily rate and revenue per available room).
  2. Lenders are recognizing that hotel loan defaults are imminent. We are starting to see lenders recognize that even though a mortgage has been extended, or is performing “today.” it will not perform next month or very soon. They are preparing to deal with the assets now and finding some borrowers are sanguine, but others are not. It is better to act sooner.
  3. Owners aren’t going to make up the shortfalls much longer. The report today that the Ilikai hotel has closed is just a high profile indicator of more closures coming. Delinquencies and foreclosures are skyrocketing, and hotels are going dark because neither the owner nor the lender will advance money to meet shortfalls to pay payroll, utilities and operating expenses. See “Hotel foreclosures . . . to set new records . . .”

Blessing in disguise?

Unfortunately, the hotel industry won’t start to get better until well after the economy bottoms and starts to make significant and sustained improvement. With the capitulation of Smith Travel’s optimism yesterday, most industry experts don’t see significant improvement for hotels until sometime in 2011. And things will get much worse before they get better. But at least a realistic view of immediate prospects sets the stage for the massive RESET that must take place before the hotel industry improves — a RESET in leverage, values and expectations. Ouch!

Other articles on State of the Hotel Industry

Other recent articles that relate to the state of the industry paint a pretty consistent picture of data and trends. Here are a few links to articles for your convenience:

This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We’ve done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from troubled hotel transactions. Who’s your hotel lawyer?

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Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.

Jim Butler is a founding partner of JMBM and Chairman of its Global Hospitality Group®. Jim is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” and you will see why.

JMBM’s troubled asset team has handled more than 1,000 receiverships and many complex insolvency issues. But Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. For example, they have developed some unique proprietary approaches to unlock value in underwater hotels that can benefit lenders, borrowers and investors. (GOOGLE “JMBM’s SAVE program”.)

Whether it is a troubled investment or new transaction, JMBM’s Global Hospitality Group® creates legal and business solutions for hotel owners and lenders. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.