August 2009

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Management Companies with Receiver Savvy Are in Short Supply

By John F. Sweeney, R&R Global Hospitality

It is no surprise to anyone in the hospitality business that there is a shortage of management companies who have real knowledge and experience dealing with troubled hotel assets.

We are now seeing a precipitate rise in hotel foreclosures despite efforts by lenders granting loan extensions, agreeing to frightened forbearance, making muddled modifications, and renewing bailout-driven cross-collateralizations. These are financial band aids being applied to gaping wounds as “emergency room” solutions to avoid taking over assets that lenders don’t want to own or manage.

It’s understandable that lenders would prefer hotel owners to partially pay down debt rather than take over operations that continue to be underwater and underperforming. But auditors are lurking in the wings wielding whips that call for action.

The reality is…the holding and hoping stage is over. These troubled assets are destined to end up in foreclosure, generally preceded by a receivership and later ending up in a lender’s REO portfolio.

It is also obvious these lenders can ill-afford to have hotels close their doors. Once the doors slam shut the market value of an asset can fall overnight by as much 50%. Not to mention, there is still a carry cost to the lender even while the operation is closed and the asset’s physical attributes deteriorate.

All of these factors contribute to creating a very strong demand for savvy receivers and operators who have experience dealing with complex assets. The problem is the type of management required is not the same as that offered by the majority of management companies serving our industry.

We advise anyone seeking a receiver / management team to consider the following special credentials when selecting a company to step in and take over hotel management:

  1. 1. Does the hotel management company actually have experience managing hotels in receivership?
  2. 2. Does the hotel management company have relationships with receivers actively doing hotel receiverships? (This helps eliminate learning curve down time and guarantees good working relationship will ensue between the receiver and hotel management company.)
  3. 3. Does the hotel management company have a background dealing with troubled assets? (Receivership assets not only need receiver savvy managers but also experts who are skilled at executing guerrilla warfare driven operations and marketing tactics.)
  4. 4. In cases where the hotel has mixed-use real estate assets as part of the property offering, does the hotel management company have experience with home owner’s associations and operating spas, condo hotels, timeshare or fractional? (Most hotel management companies are totally focused on hotel management alone.)
  5. 5. Is the hotel management company licensed to manage home owner’s associations and provide software that mixed-use condo hotel assets require?
  6. 6. Does the hotel management company have the capacity and resources to devote the required time to the asset? (Managing troubled assets requires more than “phoning-it-in” interface and a once a month visits.)
  7. 7. Does the hotel management company have in house expertise to oversee capital project upgrades and do they have exceptional relations with brands? (Chances are there will be a need to re-position the asset before it can be disposed of.)
  8. 8. Does the hotel management company have the ability to produce timely and accurate financial reports?
  9. 9. Does the hotel management company have the ability to produce timely and accurate operating forecasts? (Both points 8 and 9 are essential when presenting documents to the court and allowing lenders to effectively plan required cash calls.)
  10. 10. Does the management company have the experience to work with a hybrid cash and accrual systems so the receiver estate can be “wrap-upped” quickly?

These are difficult, trying and demanding times. So, selecting the right management company for “troubled asset” is a vitally important decision we at R&R Global are fully qualified to assist in. Responsible and deliberate action is the pathway to recovery.

About R&R Global:

HOTEL MANAGEMENT & CONSULTING WITH PURPOSE…
... is what sets R&R Global Hospitality apart. DIVERSITY is what enables R&R Global Hospitality to provide a full spectrum of consulting, management, asset management, and receivership services. EXPERIENCE working in 34 countries and 47 states is how R&R Global Hospitality amassed an impressive portfolio of clients whose hotel, condo, casino and vacation ownership assets are valued at over $10 billion. VISION is what prompted R&R Global Hospitality to form the most comprehensive Hotel Rescue Task Force in America. And, VALUE is what R&R Global Hospitality brings to every assignment by eliminating the need to juggle multiple companies and paying duplicated fees.

 

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