Are Court Appointed Receivers for Hotel Receivership in Demand?

Recent wisdom in the distressed hotel real estate asset sector suggests that there are a dearth of court appointed hotel receivers taking over a large number of hotels in default on behalf of lenders and special servicers throughout California. According to recent reports, the number of hotels in default or foreclosure throughout the Golden State has surged to over 400 in mid-year 2010. One also presumes that the number in hotel receivership has also surged. However, by our firm’s estimates based on the number of hotel receiverships actually reported since 2009, it has been less than 3%! These 12+ hotel receiverships where a court appointed receiver was engaged include the W Hotel – San Diego, Two Bunch Palms & Spa – Desert Hot Springs, Stanford Court – San Francisco, Marriott – Ontario, 2 Hotels (unnamed) – Los Angeles, Hotel Majestic – San Francisco and the Casa Madrona – Sausalito. So where are all of these hotel receiverships taking place? Certainly, there are more that aren’t talked about or easily made public through county court records. Gemberling, DennisStill, in my conversations with colleagues, banks and attorneys, as long as the economy is sluggish and profits and valuations remain volatile, lenders would rather extend loans in the short term. Do you blame them? Or, if in dire situations where taking a major loss is the only recourse, then a more drastic decision is to sell these assets and notes through back door deals or auctions rather than wait it out for incomes and real estate valuations to improve by putting a court appointed receiver in place through a hotel receivership. Time is money for lenders and based on recent hotel real estate sale transactions in the first half of 2010, prices have not fallen as deeply as predicted either. Clearly, this seems to be changing now that hotel economic fundamentals are improving or is it? Many financial institutions are reexamining their balance sheets and loan restructuring alternatives and appear to be rethinking their strategies going into the 3rd and 4th quarters of 2010. But, what will come of it? Will 2011 now be the year of the court appointed receiver and hotel receiverships? Or, just more drizzle rather than a long lasting thunder storm or commercial real estate tsunami as many have predicted…