Cost one issue for considering a Court Appointed Hotel Receiver, Pt 1

The cost of hotel receivership services is often a critical issue when a lender, special servicer or their legal counsel is considering a court appointed hotel receiver and interim hotel management for a pending action. As part of the initial request, it is important for the party moving to appoint someone to understand the nature of the scope of services required versus what the objective and ultimate outcome the court receiver is to achieve for all of the parties involved in the lawsuit or dispute. The most common action, such as where a lender or special servicer wants to foreclose on a hotel, would entail what the courts call a full “rents and profits” receivership. In essence, the Hotel Lobbyhotel assets, its business, income and related entities would be subject to the direction of the court order and receivership estate issues. In this case, there is a combination of receivership administration duties as well as hotel property management services to be provided. The approximate duration of the receivership action will also determine to a large extent what certain costs may be for both the receivership administration and hotel property management services, such as if there is an initial takeover fee for the first month and what the subsequent monthly minimums are thereafter. Often, the court appointed hotel receiver will charge an hourly rate for each of its staff plus direct costs and travel expenses if he or she uses separate interim hotel management. Where the court receiver does both, this is typically a percentage of the gross revenues, minimum fixed monthly fee or combination for all services, unless there will be receivership administration duties beyond the hotel operating period. Where the person appointed is out-of-state, such as from California for a Arizona state court, it is common to include some type of travel per diem with a not-to-exceed expense amount. Judges are particularly concerned about receivership costs of appointing someone who may be affordable fee wise, but incur travel expenses that far exceed the other on-site savings. Lastly, it is especially helpful to consider the financially feasibility first. As part of the fiduciary responsibility in hotel receiverships or any other similar proceedings, it must be economically viable or the party seeking the appointment must have the wherewithal to fund the shortfalls. Usually a recent profit and loss statement will provide the initial insight. If those income statements are not available or questionable, an understanding of the hotel’s occupancy, average room rates, service levels needed and debt service should be provided to the court appointed hotel receiver and interim hotel management for their evaluation. This will assist them in determining what if any additional monies may be necessary to fund the cost of hotel receivership services. To be continued…