National presence. Local knowledge. Exclusively hospitality.
Lenders & Servicers
National presence. Local knowledge. Exclusively hospitality.
HOSPITALITY INVESTMENT AND OPERATIONS EXPERTISE
Lenders and servicers continue to seek our lodging work-out and operations expertise as they proactively address their challenged hotel and resort loans.
The services we provide include:
- Valuation analyses (opinions of value)
- Sale of notes and loan instruments
- Strategic critique of hotel portfolio and identification of potential problem assets, borrowers and operators
- Negotiation of brand or operator management agreements
- Asset management pre- and post-takeover
- Contract compliance review and monitoring (borrower, manager/operator and brand)
- Identification and implementation oversight of revenue engagement and expense reduction actions
- Review of capital expenditure plans
- REO dispositions, short sales and Section 363 sale processes.
The Plasencia Group is uniquely qualified to assist lenders and servicers during this period of turmoil and operational challenges for the lodging industry.
Decades of Relevant Experience
Many of the lenders and servicers we served during previous downturns are now contacting us again to assist them in getting through the current lodging crisis.
Our principals earned invaluable experience during previous economic down-cycles, including in the early 90s, after the 9/11 terrorist attacks and again during the Great Recession.
Using the experience our associates have gained in decades of operating or overseeing hotels on behalf of institutional lenders and investors, we can provide a true and unvarnished picture of what is really taking place at the property level, particularly during challenging periods. Our realistic operating projections will assist in evaluating troubled assets in any lender or servicer portfolio.
HOSPITALITY ADVISORY SERVICES FOR LENDERS AND SERVICERS
Loan Monitoring and Sensitivity Analysis
During a Level One analysis, the advisory team offers an independent set of expert eyes and ears to the lender or servicer. Typically little or no access to information about the hotel or resort will be available beyond what is granted through loan documents.
In the Loan Monitoring and Sensitivity Analysis phase, we will:
- Perform a detailed financial analysis of property operations utilizing readily available property financial information and market intelligence, culminating in a written opinion of current and future value.
- Using the experience our associates have gained in decades of operating or overseeing hotels, provide a true and accurate picture of what is really taking place at the property level.
- Acquire existing supply and demand lodging data and extrapolate pertinent information as it relates to the subject property.
- Utilize our existing market knowledge and, when possible, use our relationships with knowledgeable local industry contacts, to obtain intelligence on surrounding market and hotel demand issues.
- Provide a written report to the client addressing initial findings regarding the financial viability and operating efficiency of the collateral, compliance with loan covenants and the property’s ability to service debt.
Asset and Operations Management
In this phase, the advisory team typically has more open access to information and to the property resulting from borrower cooperation governed by a Pre-Negotiation Agreement.
In the Asset and Operations Management phase, we will:
- If deemed appropriate, serve as the go-between with your borrowers, ensuring that they are providing you with the complete and accurate information you need, in a succinct and legible manner, and in a format that you prescribe. Areas of attention include:
- pre-negotiation agreements,
- P&I deferrals,
- default deferrals,
- operating covenants,
- suspension of operations,
- use of reserves,
- SNDA issues,
- lender consents,
- loan modification fees, and
- myriad other loan-related challenges.
- Develop a detailed report of findings and recommendations based on a review of historical financial data, operational and performance reports.
- If deemed worthwhile and feasible, complete a visit to the asset to discretely gain insight on the property’s operations and physical plant.
- Work with the property operator to develop a realistic twelve-month statement of operating projections as well as a break-even analysis.
- Prepare recommendations for revenue generation and cost containment practices after performing a detailed analysis of revenue sources, expenses and controls, departmental operations and staffing.
- Conduct a review of property operations, physical plant condition and management company contract compliance.
- Review secondary market research and conduct relevant interviews with local professionals to further understand market dynamics and possible impacts on hotel operations.
- Review the owner and/or operator’s plans to ramp-up operations to ensure they are designed in an effective and
- Monitor borrower loan compliance.
As Asset Managers, the team will take a much more active role in overseeing the property, with unrestricted access, providing longer-term asset and operational oversight, usually as a result of the asset having been taken over by the lender or servicer or as governed by a forbearance agreement.
In the Asset Management phase, we will:
- Step into an ongoing oversight role at the property level. We can provide you and the hotel operator with tried and tested strategies to stem the bleeding while still providing guests with a positive experience during their stay.
- Evaluate, recommend and monitor specific actions relative to all aspects of hotel performance, including revenue
generation, expense management, management proficiency, brand affiliation, capital budgeting and planning.
- Interview and engage a property management firm or general manager on behalf of the client, as needed, and provide oversight of the transition process, as applicable.
- Develop performance benchmarks and financial reporting methodology.
- Develop and implement financial control point responsibilities.
- Source and engage third-party accounting services provider, as needed.
- Monitor management’s existing financial controls, policies and procedures.
- Provide operational oversight, including regular property visits.
- Review physical plant preventive maintenance procedures.
- Participate in ownership meetings, especially as formal updates of financial and operational performance are presented.
- Facilitate meetings with franchisor and other constituents as needed.
- Provide a realistic and current hotel valuation analysis, including an estimate as to when the property is expected to return to a valuation on which the loan was originally based.
- Assist in determining the possible disposition of the loan or the asset itself.
Investment Advisory Services
Should a note sale or a disposition of the property, short sale or Section 363 sale become necessary, our Investment Advisory group will execute a well-orchestrated sale process aimed at generating the highest possible proceeds from the most qualified buyers in the shortest possible time. Since 1993, The Plasencia Group has been a national leader in hospitality investment transactions throughout North America and the Caribbean, working alongside dozens of lenders and institutional owners.
Investment Advisory Services overview:
- We provide personalized investment services to banks and pension funds, life insurance companies, real
estate investment trusts, and other owners of hotels, resorts, and golf courses throughout North America.
- Our principals have completed billions of dollars in hotel transactions in their combined careers and have
executed some of the most challenging and complicated trades in the marketplace.
- We have worked with nearly every major brand, property type, operator and ownership group in the lodging investment arena.
Examples of history of success with dispositions is available on the Representative Engagements page.
EVALUATING HOTEL LOANS
Questions Lenders Should Be Asking
How well do you know your borrower?
In addition to the multitude of property- and market-level factors impacting lender decisions, a candid evaluation of the borrower can impact many loan decisions. The level of relationship between you and your borrower, their current financial wherewithal, and the positioning of your loan within their overall asset portfolio are all critical factors in determining the best course of action in times of crisis.
Relevant questions to consider:
- What is the history of the relationship with the borrower?
- What is the relative size of their specific loan compared to your overall loan portfolio?
- How would you describe the borrower’s creditworthiness and financial wherewithal today?
- Have they been a “good borrower” in the past, including during past downturns and in this time of crisis?
- Where does your specific loan fit into their larger portfolio? Is the asset securing the loan a “crown jewel” for them, or simply a commodity amidst many?
- How is the balance of the borrower’s portfolio holdings positioned in light of the pandemic? Do they have drive-to, leisure-oriented properties that should be outperforming, or large group boxes that are likely struggling? How do those holdings impact their approach to your loan?
- What does the full capital stack for the asset consist of, and is there an additional component beyond equity that is financially constraining the borrower?
How has the subject hotel fared thus far?
A review of year-to-date performance is essential. Deep dives into monthly P&L statements and STR reports for the subject property will be illustrative. We recommend not only a line-by-line review of each revenue and expense item, but also a topline study of the broader market, the subject hotel’s competitive set, and similar properties in various locales nationwide.
Relevant questions to consider:
- When compared to its competitive set, how have the subject hotel’s Occupancy, Average Daily Rate (ADR), and Revenue per Available Room (RevPAR) indices fared? Has the property’s market share suffered more or less than the competitive market performance?
- How steep has the decline been at the bottom line? Has recent performance required the borrower to inject cash to shore up operations?
- Has the operator made aggressive reductions in variable expenses?
- What sort of property staffing changes have been made to cut costs?
- Has the operator appealed to the brand for relief in requirements or brand standards?
- Has the operator contacted all vendors, negotiated discounts, or renegotiated terms?
- Do payables, especially major fixed items like payroll taxes, property taxes and insurance, remain current?
- What was the hotel’s trajectory heading into the COVID-19 crisis? Were market share, revenues, and profitability improving or declining?
- Did a large amount of new supply recently enter the market, worsening recovery prospects?
- Did the market lose any demand generators? Are there new demand generators as a result of the downturn that may be coming into the market?
- Is there a different market segment or type of business that is now feasible to take on that may not have been desired in the past?
- Has the borrower received PPP funds? If so, how have they been deployed?
What are the subject hotel’s prospects?
A thorough analysis of how the subject property will fare in the COVID and post-COVID operating environment will be critical in determining the viability of the collateral. The pandemic has brought about transformational shifts in demand, which have at least temporarily crippled group and corporate transient travel and elevated leisure demand, especially related to regional drive-to locations.
Relevant questions to consider:
- How much transient and group business is already on the books for this critical period? What do property pace reports look like, and how tight is the booking window? Is there a strategy for securing business that does not drive ADR down considerably?
- Is the property traditionally reliant on group or corporate business? How possible is it to shift to a leisure-oriented operating strategy?
- Are there new segments of demand that can be secured because of the crisis (e.g., medical staff, National Guard)?
- What are the subject hotel’s prospects for protecting revenue by maintaining as high an occupancy rate as possible without dropping rates for the balance of 2020 and 2021?
- Is it possible to fundamentally shift the property’s operating structure to a more streamlined and efficient model by shuttering meeting spaces and even some guestroom floors or wings?
- What is breakeven RevPAR for the hotel, factoring in current reductions in operating expenses?
- What are the capital needs at the property? Has the hotel been recently renovated, or does it require significant capital expenditure to adequately capture market demand?
- How extensive are outstanding payables?
- How reliant is the hotel’s profitability on food and beverage (F&B) operations? What are the prospects for the hotel’s F&B revenue in the COVID operating environment?
- How well is the hotel set up for social distancing? Is it vertically configured, requiring usage of confined spaces (e.g., small lobbies, elevators, enclosed hallways), or does it allow for adequate space between people?
- How is the operator marketing the hotel as safe and sanitary, ensuring that guests feel secure?
- How is the operator using social media and web marketing to increase communication to the regional, driving-distance markets?
What is the impact of the subject hotel’s market?
A thorough understanding of the subject property’s market is essential in determining the viability of an asset as collateral. The COVID-19 pandemic continues to disparately impact regions and cities across the country, creating clear winners and losers at a given point in time. Public perception of the relative safety of the subject market and its state and local governments’ responses to the pandemic will have significant implications for the short- to medium-term profitability of the subject hotel.
Relevant questions to consider:
- Is the local economy tied to one industry that has been fundamentally altered by the pandemic (e.g., energy, cruises, conventions, theme parks)?
- How dependent is the market on international travel?
- Is demand in the market seasonal? If so, how will shutdowns and quarantines impact the market’s peak season?
- How accessible is the market to automotive travel? Is the market within driving distance of large population centers?
- If the market currently a hotbed for COVID-19 caseload growth, how is property management dealing with the impact in the short term?
- Is the market conducive to outdoor, leisure oriented activities? Is there a potential return on investment for wise modifications to support outdoor activities (e.g., pool area seating and improvements, tents for outdoor functions)?
- What are the characteristics of the labor market? How easy or difficult will it be to restaff the hotel once the pandemic passes?
- Can the local visitors bureau, chamber of commerce or other business organizations assist in messaging to help drive demand?
GET IN TOUCH
We would consider it a pleasure to address any questions you may have about our capabilities or services. To discuss opportunities to collaborate with The Plasencia Group, please call us, email us, or fill out the form here and a member of The Plasencia Group’s team will be in touch in the next 24-48 business hours.
PHONE | 813.932.1234
EMAIL | email@example.com