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Hospitality Lawyer Insights from MTM: #8. How should borrowers and lenders deal with each other during this credit crisis?

19 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.

#8. How should borrowers and lenders deal with each other during this credit crisis?

Patrick O’Neal


Patrick O’Neal
Vice President
Midland Loan Services, Inc.

“There is a disconnect between lenders and borrowers. Borrowers are in denial that they borrowed too much money.”

Curt Spaugh:


Curt Spaugh
Helios AMC

“In this environment, how do you define “reasonable financing?””
Thomas Corcoran:


Thomas Corcoran
Chairman of the Board
Felcor Lodging Trust Incorporated

“Borrowers must communicate with their lenders. Let the lender know what is going on. Be truthful. If you really cannot solve the problem, you want people to know that you have done everything that you possibly can.”

Jack Westergom:


Jack Westergom
Managing Director
Manhattan Hospitality Advisors, Inc.

“The borrower can’t show up with the same operating plan that the loan docs are based on, you have to show them something new and what you are actively doing to solve your problems.”

Jonathan Falik:


Jonathan Falik
Chief Executive Officer
JF Capital Advisors

“It is critical to communicate crisply and thoroughly with your lender. The asymmetrical information is a problem — the lender is getting their information in arrears, they aren’t out in the market and they don’t see what is going on. In May, lenders get reports from March. Borrowers are looking forward and lenders are looking backward.”

Patrick O’Neal

“I’ve had borrowers come to us and say, “What are you going to do to solve my problem?” which is an interesting approach. We already have a solution – it’s called the loan agreement, remember? The agreement where you agreed to pay?”
Troy Miller:

Troy Miller
Managing Director
Centerline Capital Group
“There is opportunity out there. On the CMBS side, asset managers need to run through the business plans of every single deal to figure out how to maximize the value.”

Bernard N. Siegel:


Bernard N. Siegel
KSL Capital Partners, LLC
(720) 284-6440

“People talk of estimated defaults of 8% to 9% and I think that is severely under-estimated. If you are a borrower, you need to engage your investor and lender today! The first question from your lender today will be: can you provide more capital? If you can’t, you need a compelling business plan, or else there is no reason to talk. If you don’t bring some incentive to your lender, he will move on.”

Chad Christensen:


Chad Christensen
Vice President
Washington Real Estate Holdings, LLC

“There is a lot of supply coming into hospitality, and our competition is contracting. So my recommendation to borrowers is that if you have imminent loan maturities, the sooner you reach out to your lender, the better.”

Jonathan Roth:


Jonathan Roth
Canyon Capital Realty Advisors

“If a sponsor won’t reach in its own pocket, then there is no incentive to do anything. We can run the hotel just as well as they can.”

Deric Eubanks:


Deric Eubanks
Ashford Hospitality Trust, Inc.

“As a borrower, we are extremely proactive in talking to lenders. CMBS is so swamped they won’t even talk to you unless default is imminent.”

Patrick O’Neal

“What we should really be talking about is distressed lenders, not distressed properties. In some cases, the underlying collateral may be fine, but the lender cannot meet funding obligations for PIPs. We see that as an opportunity to take over a senior piece of the loan and fund the remaining PIP. Those deals can be compelling to lenders.”

John Lustgarten:


John Lustgarten
Vice President
Lowe Enterprises Investors, LLC

“Most lenders want to see things work, so they will be open, but you have to make it worth their while.”

Chad Christensen:

“We are looking for our borrower to convince us to stay in the deal, not the other way around. If a borrower is willing to put real money into the deal and has a plan to increase cash flow, we are willing to work it out, but if not, we will let it go into default.”

Jonathan Roth:

“That is true for us at Canyon Capital. If the owner isn’t willing to put skin in the game, we would rather end up with the property and either manage it ourselves or bring in new managers. We can start over and wipe out the capital stack.”

Barry Olson


Barry Olson
Managing Director
Archorn Group, LP

“Everyone on this panel owns properties, so we see it from both the owner and the lender perspective. However, there are many lenders that don’t want to take back a property because they are working month-to-month and need the cash flow rather than the property. Short-term vs. long term lenders will approach the problem differently.”

Patrick O’Neal

“Instead of asking the lender to discount the note, find out how much the real estate is worth, because it may be worth more than the note.”

Bernard N. Siegel:

“I’ve seen lenders offering extensions because they don’t want to be a hotel owner, and some borrowers that don’t want the extension because it would take many years of very hard work to see a turnaround and to get above water.”

Jonathan Falik:

“Be clear about whether the asset is distressed or the capital structure is distressed, or both. First analyze the asset, including operations, capital needs and the management agreement. What does the property need? Is the projection realistic? Figure out what the loan agreement says. Where are you now and where do you need to go? Where do you end up on the other side of the cycle?”
Kevin Mahoney:


Kevin Mahoney
Stonebridge Companies

“From a private company standpoint, if you can’t afford to feed it and it’s a non-recourse loan, you have to work it out.”

Jonathan Roth:

“The goal is always to leave ownership in place — but the owner needs to have skin in the game.”

This is Jim Butler, author of 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?

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 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”.)