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Hospitality Lawyer Insights from MTM: #11. What are the winning strategies for hotels today?

22 May 2009

Hospitality Lawyer Insights from Meet the Money® 2009: The hospitality lawyers of JMBM’s Global Hospitality Group® have presented an annual hotel conference for 19 years. On May 5-7, 2009 in Los Angeles, California, nearly 400 industry leaders gathered at the Sheraton LAX for Meet the Money® 2009.


Presentations from Hotel Industry thought leaders by JMBM’s hospitality lawyers

The PowerPoint presentations from a number of industry leaders at Meet the Money® 2009 are listed with hyperlinks at JEWELS from Meet the Money® 2009 — the “best ever” hotel conference.

Commentary and observations from the hospitality lawyers of JMBM and other industry experts on some of the critical industry issues are available at Hospitality Lawyer Insights.

Here is the latest in the Hospitality Lawyer Insights series on some of the most critical issues of our day.

#11. What are the winning strategies for hotels today?

Jonathan Falik:

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Jonathan Falik
Chief Executive Officer
JF Capital Advisors
212-681-7040
jonathan@ifcap.com



“So many owners are focused on liquidity – as they need to be. We will look for assets with good bones that can be up-branded, or repositioned. We see several years of that coming. Some projects will be driven by the brands. When things start to improve, the brands will look for owners to put more money into the properties.”
Kevin Mahoney:

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Kevin Mahoney
CEO
Stonebridge Companies
303-785-3100
kmahoney@stonebridgecompanies.com



“We are focusing on value enhancement. We saw the turn coming 6 months ago and began renegotiating with our vendors. This is the right time to re-balance your portfolio for the future. We renegotiated waste and trash removal for our entire portfolio. We re-did our life-safety contracts. We added parking to facilities to generate more income.. There is so much that you can do at a grass roots level.”

Russ Urban:

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Russ Urban
Senior Vice President, Development
HEI Hotels & Resorts LLC
203-849-2279
rurban@heihotels.com



“Historically, we just buy for cash and then put debt on. We buy 100 percent of the real estate without complications — these are simple deals. We believe value is most important and structure is second. But to be a player today, you have to be willing to buy debt.”

We’ve seen a deal on a beachfront hotel that, a year ago would have been valued at $100 million with $50 million in senior debt and $30 million in 5 other tranches. Today, it is valued at about $50 million. You can try to buy the first mortgage and wait for the asset to come to you, or you can try to consolidate and provide fresh equity. We try to incentivize the first mortgage to give a 5-year “runway” to improve the value.

Scott Brown:

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Scott Brown
CEO/Co-Founder
ABA Development, LLC
415-526-0070
scott@abadevelopment.com



“We are looking at all equity deals, with 5% or more IRR, unlevered. If things come from a seller or broker, it probably won’t work.”

Jack vanHartesvelt

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Jack vanHartesvelt
Executive Vice President – Partner
Kennedy Associates Real Estate
206-623-4739
jackv@kennedyusa.com



“We are looking at doing deals with all equity. We will take debt only if it is priced right. On most great assets, you will have to get them from the bank. People in the industry need to be familiar with FASB 157. If you know the value under FASB 157, that is what you can buy it for.”

Note from Hotel Law Blog: FASB 157 is a Federal Accounting Standards Board statement that requires all publicly-traded companies in the U.S. to classify their assets based on the certainty with which fair values can be calculated. This statement created three asset categories: Level 1, Level 2 and Level 3. Level 1 assets are the easiest to value accurately based on standard market-based prices and Level 3 are the most difficult.

Paul Novak:

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Paul Novak
President
Bedrock Partners
305-365-7880
pnovak@bedrockpartners.com



“Originally, Bedrock was formed in 1994 primarily to take advantage of distressed product. Our concept was to buy good assets, in good markets, in great places that were worn out, like 25-year- old Holiday Inns that might have been bumped down the food chain. We gutted the buildings, reskinned them and sold the hotels at double the investment 3 or 4 years later.

We are re-launching bedrock, because the opportunities are just as great today as they were in the 1990s. In our model, the variable is what we pay for the property — not for the renovation. The renovation cost will not be worked downward to help meet a purchase price.”

George Ruff:

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George Ruff
Senior Principal
Trinity Hotel Investors, LLC
212-433-1600
gruff@trinityhotels.com



“The first opportunity will be to buy distressed debt. We would buy debt today. It is only a function of pricing, adjusted to risk. I don’t know where the bottom is, but I don’t want to compete when markets are rising. I want to be there before all the money on the sidelines will come pouring in. We avoid bid situations, but we love busted auctions.”

Ambrose Fisher:

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Ambrose Fisher
Managing Director
Oaktree Capital
213-830-6319
afisher@oaktreecapital.com



“Invest in NA;
Specialize in distressed debt;
Feels like it is still pretty early, but have invested in distressed debt of public companies — wrote it down 50% and still felt like buying at a 14% cap rate.

Have not bought b notes yet. See big spread between bid and ask. Are looking to pick up great hotel assets in major gateway cities.”

Scott Chernoff:

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Scott Chernoff
Principal
Westport Capital Partners, LLC
310-294-1236
schernoff@wesportcp.com



“We like to buy direct from sellers who are motivated. We try to reach out directly to sellers. I have been tracking an asset on the water in Florida. Fortunately, they have had 4 asset managers or they might have sold it at a much higher offer Scott made.

But when people do decide to sell, they are in a rush. They want to get bids in a few weeks, and then want deal signed and closed in a few weeks.”

Larry Broughton:

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Larry Broughton
President and CEO
Broughton Hospitality Group
714-848-2224
lb@broughtonhospitality.com



“The reality is that a lot of the value comes from the management of the hotel. Many operators have implemented recession-oriented models.”

Jack Westergom:

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Jack Westergom
Managing Director
Manhattan Hospitality Advisors, Inc.
310-798-8863
jwestergom@mha-online.com



“Borrowers that are in trouble can get professional assistance that will help them to identify areas that add value to their hotels. We work with JMBM’s team on the SAVE® program to help lenders and borrowers maximize the value of an asset by a very proactive approach of analysis to spot problem areas of liability and ways to drive revenues, while containing costs, and managing capital expenditures. Jim Butler’s team examines the legal encumbrances such as management, branding, labor and other matters affecting the hotel’s values for strategic analysis.”

[For more information on the SAVE® program, click here or GOOGLE “JMBM SAVE program.”]
Steve Stoycos:

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Steve Stoycos
Consultant, Mezzanine Fund & Principal Investments
Choice Hotels
301-592-5179
steve_stoycos@choicehotels.com



“We are looking at opportunistic land purchases at a substantial discount. We will build the product later.”

Thomas Corcoran:

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Thomas Corcoran
Chairman of the Board
Felcor Lodging Trust Incorporated
972-444-4901
tcorcoran@felcor.com



“Good brands are helping franchisors work through difficulties. They realize that this is a uniquely difficult time for hotel owners.”

Tom Engel:

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Tom Engel
President
T.R. Engel Group, LLC
617-451-1701
thomasengel@trengelgroup.com



“This is not a sprint, this a marathon. There is going to be an opportunity to create wealth and you want to stay in the race.”

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 SAVE program”.)