Typically a hotel receivership is put in place when a lender who holds the mortgage of the hotel, or investors who have put substantial amounts of money in to the business want someone such as a receiver to step in to preserve and maintain the asset and/or success and profitability of the business. In this article we will further describe what a receivership is. We will also get into some specific situations where a lender or investor may want to consider a hotel receivership.
What is a Hotel Receivership?
As explained above, lenders or investors in a hotel business will seek a court appointed receivership if they find that the owner/operator of the building is mismanaging its monthly debt obligations. A receiver becomes a neutral entity who will take over for a determined period of time. They will seek to take control of hotel bank accounts to determine where monies flow. They also sometimes act as a buffer between the lenders and the owner/operator should any conflicts arise.
A hotel receiver’s abilities should be broad in order to handle different situations as they come. It’s probably best to speak with a few different companies who offer receiver services. This way a lender or investor knows the cost as well as what they will need for their specific situations. A receiver needs to be able to conduct operations without continuously requesting approval from the court. This means that the order appointing the receiver has to be laid out clearly from the beginning. Whether it be an equity receivership, limited purpose hotel receivership, or a full “rents and profits” receivership.
Why You Might Want to Consider a Hotel Receivership
When an owner or operator of a hotel business is not handling funds efficiently such as paying back debt services like the mortgage, insurance, tax and manager fees along with various other expenses, a receivership may be the cost effective scenario to help preserve and maintain the profitability of the hotel business. We addressed some functions a receivership does in order to accomplish this in the above paragraph.
When the management of a hotel business isn’t maximizing revenue, a court appointed receiver becomes an appealing option. Or when the owner/operator of the hotel pays themselves incentive fees or other bonuses on top of their salary. Especially when those excessive bonuses could be used to offset the mortgage loan. In situations like these it’s quite easy, for lenders and investors to determine that a hotel receivership is necessary. A receivership wrests control from the owner/operator in order to get the business back on track.
Ultimately it is up to the investors, or the lenders who hold the mortgage to determine if a receivership is the right step to take. A business or company never wants to involve the court as a first option. But, if for example, your hotel business is in distress because of the compensation going to the owner of the hotel gets to be too excessive and comes at the expense of the lender, then a hotel receivership is the right solution. At Perry Group International, we can give advice on this by offering a free no-cost consultation, or point you in the right direction of someone better suited to help you with your specific needs.