During crisis times, the hospitality industry becomes fragile as demand is driven by guests. Conditions that affect guests also affect the business. As its nature, hospitality investments usually have longer return on investments, and sometimes detached investor profile as owning a hotel and operating it are two different practices.
In this case study, 10 hotels that were part of an estate, went into bankruptcy and were in need of change in management. The chosen consultants took the control of the estate as receivership manager then changed the course of bankruptcy and saved the hotel estate in 18 months of management.
Hotel Receivership Challenges
The debtor was in possession of the hotel properties and was solely responsible for their management. The transfer of authority to a third party consultant and management company during receivership would be unexpected and unwelcome.
The properties were located in five different cities in two states, California and Arizona. There were three major national brands involved; two of the properties were in default, each with a different major national brand.
There were extensive deferred maintenance problems on both independent and branded properties. Due to the circumstances, there would be almost no lead time.
Hotel Receivership Solutions
The 3rd party consulting and management company were hired on a Tuesday night. By leveraging existing on-hand resources, they were able to deploy teams in 48 hours for 5 cities in 2 different states. The teams deployed to the properties were consisting 4 people each and a specialist was deployed for one property.
The first action item was to freeze all accounts, secure the cash, get insurance, and start with accounting. The new management team must quickly gain a deep and detailed understanding of the portfolio and kept the bankruptcy trustee closely informed of their progress. This enabled bankruptcy trustee to speak with confidence when advising the court and the major creditors of the financial and physical condition of the properties.
Due to being able to leverage industry knowledge and contact with executives at the major national brands, they successfully brought defaulting properties out of default status. An extensive deferred maintenance plan was created in a focused and prioritized manner. The existing staff was trained using an online platform, HMBookstore, while managing to avoid the loss of significant numbers of existing staff.
Results of the Hotel Receivership
Despite the difficult circumstances related to timing and resources plus the substantial deferred maintenance expenditures, the results showed an increase of the net operating income by 35.6% over eighteen months of the estate’s receivership.
To be successful in hotel receivership, a 3rd party consultant and management company must keep the properties running while maintaining a good relationship with national brands. At the same time, the goal is to increase the net operating income, train employees and increase the value of the properties for a possible sale.
Ken Edwards is owner of Tristar Hotel Group, HMBookstore and Hotel Management Online, LLC, along with being a consultant at Cayuga Hospitality Consultants. Ken has experience building, operating and developing branded hotels across the country along with extensive receivership experience. As a hotel owner, he has been involved with the IHG Owner’s Association as a board and committee member. He received a B.S. in Hotel Management from the University of Nevada plus has a degree from the Culinary Institute of America.