Although we’re slowly emerging from the economic downturn brought about by the COVD pandemic, the hotel industry may take months to fully recover, even as Americans resume traveling. We know that lenders across the country are watching borrowers struggle to stay current on their hotel mortgages and loans. Hotel mortgage delinquencies reached record highs last summer, prompting fears of widespread hotel foreclosures. In Sept. 2020, an estimated 50% of U.S. hotel owners believed that they were in danger of foreclosure, according to the travel industry news site Skift.
If you are a lender faced with a hotel borrower who is unable to meet their loan obligations, here are a few things you need to do before you begin the hotel foreclosure process.
Hotel Foreclosure: The Initial Assessment
Before settling on a course of action, lenders should assess the hotel borrower to understand the hotel’s business structure; lenders should also thoroughly review the loan file and compile all of the necessary documents and information. This is a time to ensure that all loan documentation is complete, and that the borrower’s financial information is current and notated.
Who Owns and Operates The Hotel?
Hotel foreclosures are made more complex due to the question of ownership. Hotel ownership takes on multiple forms. Some are independently owned and operated. Many, of course, are owned and operated by brands (Hyatt, Hilton, IHG, Wyndham, to name a few). Individual hotels or small hotel groups may also be franchised, and many of these franchised hotels are managed by outside management companies. This is particularly common in the U.S. Understanding the hotel’s ownership and management structure is critical to determine the value of the collateral, the future viability of the business, and what the best course of action will be.
Is Foreclosing on a Hotel The Best Option?
Once the lender has gathered all of the necessary information, it’s time to consider all options for resolving the delinquency. The value of the collateral is important here. Foreclosure might be a good option if the lender believes the property has future value. But it’s not the only way forward. Other options could include selling the loan, restructuring the loan, or requesting a deed in lieu of foreclosure. If modifying the loan is being considered, the lender should consider leveraging the hotel’s assets as security. These assets may include cash, land and real estate, and the property’s inventory (furniture, fixtures and equipment).
If you’re dealing with a borrower whose hotel loan has gone into delinquency, Total Lender Solutions can help. At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensures that our clients feel confident in reaching a successful outcome. Contact us today.
