Now that hotel occupancies and average daily rates are on the rise, bank foreclosure alternatives such as a receivership may be another option. Of course, using the courts to agree to your appointing a receiver to potentially sell the hotel asset(s) during it may make sense if a number of factors look to support it in the short term. According to “A BEGINNER’S GUIDE TO SELLING OUT: SELECTED STRATEGIES TO MAXIMIZE RETURN ON DISTRESSED COLLATERAL by Ian T. Peck, Erik K. Martin and Jordan Bailey with Haynes and Boone, LLP: One advantage of a receivership is that it provides the lender with flexibility in disposing of the property. Receiverships, based in the laws of equity, can afford a more flexible remedy than bankruptcy because there is no statutory counterpart to the Bankruptcy Code. A secured lender is generally able to carefully craft the receivership order to fit each unique situation (subject to court approval, of course). Additionally, unlike a foreclosure sale, a receiver has the ability to move with the speed that the market demands – if market prices are depressed, a receiver may elect to reposition the property for a later sale to maximize the property’s value. If time is of the essence, however, a receiver can generally move expeditiously in noticing a sale and disposing of the asset. A receiver is also authorized to collect rents, profits and revenues, improve management, and otherwise manage a property to maximize its value during the pendency of the receivership. The use of a receivership may also provide a lender which is a REMIC more flexibility to reposition and market an asset than a foreclosure and cash sale of the asset.” The full report on these foreclosure alternatives is here. Of course, avoiding taking possession through a foreclosure and using court appointed receivers instead will require some solid legal basis. In addition to flexibility, it may make sense if some of the following are strongly in your favor as it concerns hotels: Current Market for Hotel Real Estate Sales Favors a Disposition in 12 to 18 months; Income Can Be Increased by the Receiver Resulting in a Higher Hotel Valuation; Receiverships Costs Outweigh Taking Possession as an ORE/REO. Need advice on whether a receivership sale is a good solution? If you are a lender considering a court approved hotel receivership or other type of asset sale, register for this informative program “Receivership Sales” on September 22nd in San Francisco and hosted by the Bay Area Chapter of the California Receivers Forum. Or, are you a bank or lending institution with non-performing hotel loans or lodging properties already in default? Does a receivership as foreclosure alternatives to sell the hotel make better sense? If so, why and what reasons can you post here for our readers.
