Articles Posted in Hotel Finance − Hotel Debt & Hotel Equity

01 April 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on distressed hotel loans and here for The Lenders Handbook for Troubled Hotels.

Alternative Strategies
for Troubled Hotel Mortgage Loans
by
Jim Butler
JMBM’s Global Hospitality Group®

When a hotel loan gets in trouble, a lender should immediately perform a Comprehensive Situation Analysis. Borrowers should do the same and be fast to approach lenders with candor and an actual plan demonstrating what is needed and how it will work.

This Comprehensive Situation Analysis is the foundation for making some of the most important decisions that the lender and borrower will face on what to do with a distressed loan or asset.

When the Comprehensive Situation Analysis is completed, what’s next? What do the amassed facts indicate? How do they tell the parties what to do? What are the alternatives for dealing with a troubled hotel loan?

Basically, the alternatives for a lender with troubled hotel asset are:

1. 1. Do nothing (or sell the loan)
   2. Workout the loan
   3. Appoint a receiver
   4. Seek a deed-in-lieu
   5. Commence foreclosure
   6. Seek Relief in bankruptcy proceedings

The matrix below shows how many of the relevant factors will suggest the appropriate alternative to select.

Please let me know if you have seen any significant considerations we have missed.

CONTINUE READING →

30 March 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on distressed hotel loans and here for The Lenders Handbook for Troubled Hotels.

The Comprehensive Situation Analysis should have gathered and considered all the relevant factors concerning the distressed hotel loan documents, the borrower, the hotel and their related considerations. Now it is time to consider these in light of the lender’s goals and the available alternatives. Given the complexities of the typical Special Asset, it is sometimes helpful to boil it down to a summary form that may over-simplify, but at least provides a grid or framework for analysis.

Over the years, I developed an analytical tool that we call “Butler’s Matrix” and it is set forth below: CONTINUE READING →

23 March 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on distressed hotel loans and here for The Lenders Handbook for Troubled Hotels.

The Comprehensive Situation Analysis
for Troubled Hotel Loans
by
Jim Butler
JMBM’s Global Hospitality Group®

When Special Assets Teams and special servicers see troubled hotel loans coming onto their screens, they should quickly perform a “Comprehensive Situation Analysis.” The Comprehensive Situation Analysis forms the critical foundation for a lender choosing among its alternative strategies of workout, receivership, deed in lieu or bankruptcy (seeking involuntary bankruptcy and appointment of a trustee).

What is included in the Comprehensive Situation Analysis? Read on!

Early Warning System

For the same reason a lender needs access to information, it needs an excellent early warning system. In addition to obvious items such as a default under a franchise agreement or material contract, knowledgeable industry people are likely to know or be able to detect when a geographic area, market segment or particular hotel is getting into trouble-long before it shows up in the profit and loss statement. A decrease in inventories, failure to maintain the property, a cutback in marketing and other changes in the annual plan, budget, and marketing plan may all be early warning signs. Many prudent lenders have consultants watch their asset portfolios for significant trends and changes that indicate problems. The Special Assets Team should become involved early in the process. But special assets generally also require availability and advice from industry-savvy consultants and counsel.

Without good early warning systems, lenders are being surprised by borrowers calling to say, “We are giving the property back. Payroll is due Friday, and there isn’t any money in the account. . .” Lenders cannot rely on last quarter’s budgets or projections. They need current information to avoid these nasty surprises.

Information Update

The concept of updating all information for troubled hotel assets is the same as for any troubled assets. However, in the case of a hotel, one will typically look for items such as hotel franchise agreements and amendments, management agreements and amendments, any agreements, leases and other arrangements with golf pros, concessionaires and the like, recreational use agreements for golf, tennis, aquatics, equestrian or other amenities, and tax information and returns including occupancy, sales and use, employment, personal property and real property taxes. A checklist approach is helpful.

CONTINUE READING →

19 March 2020

See how JMBM’s Global Hospitality Group® can help you.
Click here for the latest articles on distressed hotel loans and here for The Lenders Handbook for Troubled Hotels.
Hotel industry crisis: 8 Do’s and Don’ts
for distressed hotels
by
Jim Butler and Guy Maisnik
JMBM’s Global Hospitality Group®

As the COVID-19 crisis grows in the US and elsewhere outside China, hotels and restaurants are among the businesses hardest hit. In select markets like Seattle and San Francisco, hotels are reporting single digit occupancies and crushed ADRs. Many hotels do not have the cash flow to keep their doors open. The major hotel companies are talking of furloughs for tens of thousands of hotel employees and many properties are looking at closure or skeleton team maintenance operations.

This is a time for those with troubled hotel assets to “get back to the basics”.  Here is our time-tested list of Do’s and Don’t’s for distressed hotels and other special assets closely intertwined with operating businesses. There is a wealth of such materials available at HotelLawyer.com.

Here is our updated take on the 8 Dos and Don’ts for distressed hotels. If you just got a notice that your hotel asset is about to lay off staff and close, jump to #4 in the list below and then circle back.

1. Prevention.

Prevention is the first step in a well-planned approach to troubled hotel loans. Proper underwriting, documentation and provisions for access to information may help a lender facing a troubled loan. In the event the loan does get into trouble, the lender will be in a stronger position to protect its interests. Prevention includes careful underwriting of the collateral and the borrower. In underwriting the borrower, the lender should obviously look to the usual credit report and financial statements, but should often go beyond them to get a better feel for the borrower’s reputation, character, fortitude, expertise, consistency and creativity. The lender should ask: Has this borrower built or managed this kind of project before? Are the market and feasibility studies realistic? Are the projections consistent with these factors and do they provide adequately for a “worst case scenario”? Even on non-recourse loans, personal guarantees with “bad boy” carve-outs help assure borrow cooperation when things turn bad.

Once the credit decision has been made, the transaction should be fully and carefully documented with prevention in mind. Use the checklist approach to be sure nothing is overlooked. (JMBM’s Global Hospitality Group® uses our proprietary HIT List – acronym for “Hospitality Investment Task” list.) Be sure all desired title and liability insurance is in place, with endorsements to cover the lender’s interests. Particularly with construction loans, negotiate all necessary controls for the project – to cover both the ordinary course of building and the possibility of default. A lender will never have a better opportunity to protect its interests than the period before it has disbursed the loan proceeds.

2. Monitoring and early warning.

Information control is paramount. A lender must carefully monitor its loans until they are paid off. All documents and information needs to be gathered in one centralized place for security, analysis and continuous monitoring. Early warning systems should be established to alert the lender to problems with the borrower, the collateral, or the project’s feasibility. Is the property considering closing or layoffs? Is the construction or marketing of the project being delayed? Is the property being wasted? Are materials disappearing from the job site? Have the demographics and economics of the market changed adversely? If trouble signs appear, the special asset group should be consulted at an early stage, even if the project stays in the hands of the loan servicing department.

Many institutions have been “bitten” by their good faith efforts in a workout situation. The pre-workout agreement is designed to minimize these risks. CONTINUE READING →