Hotel Receiverships and Foreclosures Give Way to Lender Modifications

Hotel receiverships and foreclosures continue to wane while the appetite by lenders to modify these loans is on the rise again. Sometimes dubbed extend and pretend during the early years of this last recession, continued strong performance in the lodging real estate sector is driving the upside in hotel fundamentals. Better operating results in turn translates into the ability by hotels to service its debt. This is yet another reason to work it out and not foreclose for those banks and special servicers with hotel loans that are in default. – According to the recent December report Hotel Horizons® by PKF Hospitality Research, RevPAR (revenue-per-available-room) is projected to rise at a compounded 7% rate over the next 4 years. Gains are predominately from an increased ADR (average-daily-room-rate) and among the luxury and upscale hotel and resort segments. – This optimistic forecast also provides an added comfort level for lenders to modify hotel loans in default, when future operating incomes and subsequent valuations are anticipated to rise above pre-recession levels from a hotel investment advisor perspective. – Adding another reason we believe that hotel receiverships and foreclosures will likely be avoided, Apollo Global Management’s co-founder and senior managing director stated “You can amend, you can extend, you can refinance” during his web address at the Bank of America Merrill Lynch Banking and Financial Services Conference. – At the same time that growth is projected in the lodging sector’s performance, there is also apathy among hoteliers about the federal budget negotiations and the potential for going over the “fiscal-cliff” next year. However, many in the lodging industry do not believe that the “fiscal cliff” talks will remain at a standstill and that we will be seeing more distressed hotels as a result. Still if the economy starts to enter a recession again, modifications by lenders could easily stall, and hotel receiverships and foreclosures may be in vogue again.