Predatory Lending Practices
With few exceptions the hotel industry is often praised for its ability to be counted on during a crisis, often becoming a place of needed refuge while not taking advantage of potential price gouging opportunities. Apparently, the same is not true for lenders, particularly those involved with CMBS loans, which have not demonstrated much compassion for hoteliers despite the devastating impact from the Coronavirus pandemic.
Monty Bennett, Chairman and CEO, The Ashford Group Of Companies—an owner of more than 130 hotel assets combined—bemoaned the costly terms of loans while emphasizing the need for more government aid.
“Our industry is in a crisis. These are tough times that we’re going through, the toughest times I’ve ever even heard of as far as a drop-off in business and our industry needs help,” he said during “ALIS 6 X 8: Recovery Top Of Mind, Episode 2.”
Bennett went on to tout the latest relief bill being proposed by Congressman Van Taylor, which is designed to provide government loans equal to roughly 10 percent of a hotel’s debt amount in the form of preferred equity. This would apply to other forms of real estate as well.
Bennett then called out CMBS lenders, in particular, for their predatory practices and not working with hoteliers. “I’m concerned for this industry regarding some of the lenders. The banks have been tough but we’ve been able to work with them. The non-bank lenders have been tough but we’ve been able to work with them. But I’ve been hearing horror stories about CMBS lenders that are out there, and we’ve had a few of our own horror stories. They are just not being very helpful,” he said.
Bennett continued, “if you look at the impact to our industry and our country this is like 9/11 on steroids. A lot more people have passed away, the economic impact has been much heavier and the impact on travel has been much heavier. Back then there was an attitude among lenders of ‘hey, we need to all come together and we need to help each other.’ But in the CMBS lender world that just doesn’t exist at all.”
He added that while larger companies like Ashford may have a degree of leverage, some of the smaller companies with anywhere from one to five properties have few options. “The just have to take these awful terms from these CMBS lenders,” he said.
Bennett provided an example of one lender wanting to charge a fee that exceeded the four months of debt service for the property, in addition to the debt service. “That is outrageous. There’s just no sympathy whatsoever. In order to get through this we are going to need some help from the government and from lenders, especially CMBS lenders,” he said.
He acknowledged that at least part of the issue with CMBS loans and special servicers is the fact that there isn’t a lot of familiarity on a personal level as is the case with many traditional hospitality lenders. “There’s no long-term relationships, it’s people you’ve never done business with before and don’t even know. Even in the cases where you happen to know some of the players involved there’s just no relief, ” he said.
Separately, Bennett was asked about Ashford applying for assistance from the federal PPP [Payroll Protection Program], which the publicly-traded company initially accepted before ultimately opting to give the money back amid public pressure.
He referenced a lot of misinformation around the program pointing out it was designed for both large and small businesses, and primarily focused on employee assistance. “In the end we handed it back because the government changed the rules under pressure. They said we needed to certify that there’s no way we could raise money any other way. That’s kind of impossible, you can always raise money some way. It becomes so politicized that we would just become a target even though it was designed for situations like ours. It’s just a shame, I think it’s part of our culture now, the whole click bait and the outrage and just not getting to the core and the facts of what’s going on. And it’s our employees that suffered and we just haven’t been able to bring them back the way we wanted to and it’s a shame,” said Bennett.