Bracing For A Boom In Receivership
With many hotels in financial distress as a result of the pandemic, those companies that are adept and experienced at taking over properties in receivership figure to be well positioned for growth going forward.
In a virtual panel entitled “Bracing For A Boom In Receivership,” part of IMN’s Distressed Hotel Insights series, a number of executives shared some best practices when it comes to operating such assets and talked about what they expect in the coming months.
John Hamilton, SVP, acquisition & business development, Pyramid Hotel Group, noted the company doesn’t see taking over a property as a short-term situation as the downturn has deepened.
“We don’t think it’s a one- to two-year engagement any longer. We think this recovery is going to be three to four years so we think we’re going to be in these assets longer getting them to where they can be resolved,” he said.
Hamilton went on to point out there is plenty of opportunity even after a property is effectively turned around, specifically citing the Westin Grand Cayman, which the company is still involved in some 10 years after taking over receivership.
“We’ve also had a very positive experience when the assets we were managing were resolved. We were either retained by a new capital partner or we were introducing the asset when the hotel was being marketed to capital who we knew or had known before and they retained us as they acquired the asset,” he said.
Hamilton noted of receivership in general, “It’s good business if you’re set up to take it in and manage it according to what the lenders and the borrowers are looking for.”
Meanwhile, some companies have been set up in anticipation of the end of the cycle and properties going into distress. Douglas Wilson, Chairman and CEO, Douglas Wilson Companies, discussed his company’s partnership with TCOR Hotel Partners—which was created by industry veteran Tom Corcoran—and his expectations.
“It is a smaller platform, much more agile and it’s really in keeping with what we want to do. Our strategy is different where we would be the receiver and TCOR would come in to provide asset management services. We’ve decided that our approach should really be founded on the principle of coming up with the objective and best solutions because of all these assets are going to be different. So obviously because of the stress in this space and our deep relationships within the industry we anticipate it’s going to be an active time for us in the near future,” he said.
Bruce Kinseth, vp, Kinseth Hospitality, talked about what he sees as some of the keys to successfully taking over properties. “It starts upfront with preparation and communication. You also need to be fully staffed. We haven’t downsized any people at the corporate level so that we are prepared to handle receivership, as well as other new management contracts. There are a lot of opportunities that could be coming on board in the next 6 -12 months and maybe even longer,” he said.
Kinseth provided some other keys while noting that communication specifically with the lender is critical. “Many times after the first contact you have with lenders you may go a long period of time before you actually physically take over the property so you have to be ready. You have to do your homework, have to be prepared with the team to take over an asset, have the right team for the right property and right product type,” he noted.
Moderator Michael Nanosky, president, Janus Hotels & Resorts, offered a few of his own thoughts. “Over the past 25 years I guess I measure Janus’ success as a receiver by professionally preserving the asset, operating a hotel professionally, but most importantly never ever asking for funding,” he stated.
The panelists also emphasized the importance of communication with the brands as another key aspect of taking over a property in distress. “They are obviously extremely important. You know when you get the call day one you need to be talking to the brand right away to kind of figure out where the asset is fitting in their scheme,” said Kinseth, who added the brand may require a PIP [property improvement plan], which would need to be communicated with the lender.
Kinseth added, “I think working with the brands and having great relationships and talking to them on a regular is basis is critical for any hotel.” Nanosky maintains the process has evolved greatly.
“I think the brands are experienced in receiverships. They all seem to have a simplified contract for the property to go through that process where they’re not handcuffed to it. So all the brands are prepared this time,” he noted.