What a Lender Needs to know Before a Hotel Takeover
Not suggesting that there will be a stream of lender takeovers anytime soon that would resemble the period between 2008 and 2010, but it is a concern of a few of my lending clients.
My first response is – “Engage an experienced hotel management company – not just a hotel manager in a solo role!” If a bank merely hires a “hotel manager” – albeit the best and most experienced, the manager and all the employees of the hotel immediately become the employees of the bank. That alone ought to help the lender in the decision-making process. Further, a hotel unlike any other commercial real estate asset is a service facility - more like a retail operation than an apartment or office building. There are inherent liability issues – guests, employee relations, liquor liability to name a few.
A competent management company can quickly put a cadre in place and “triage” the most critical situations relating to the newly acquired asset. They could include, but certainly are not limited to:
An interim and mid-term cash needs analysis.
A list of major repairs and capital replacement items that are immediately needed?
A forward looking operating budget between one and three years.
The status of the hotel’s relationship with the franchisor.
A proficient management company will provide periodic updates to the bank as well as suggest experienced hotel brokers or potential purchasers of the hotel.