1. Ask your lender to modify your loan terms and defer payments. During this difficult period it is important to conduct amicable, transparent, and frequent communication with all stakeholders. This includes lenders along with your corporate business attorney and certified public accountant, as well as your hotel franchise company and any third-party management company. If you are experiencing a severe financial hardship, reach out to your lender and appeal for a modification to the existing loan terms reflecting the new business realities of today and seeking a temporary deferral of monthly loan payments.
2. Refinance and Consolidate your Existing Debt. A good option may be to explore cash out financing of existing debt on your hotel at a higher loan-to-value ratio and with a much lower interest rate and subsequently re-inject such cash equity as needed. There are many standard loan programs available that can achieve this objective. A refinance is a good opportunity for a debt consolidation in which all of a hotel owner’s different debt obligations are paid off and consolidated and afterwards a hotel owner will have just one monthly loan payment with a much better interest rate. You could consider the SBA 7a and 504 loan programs for this purpose. Unfortunately, numerous weary lenders have instituted an indefinite lending freeze on the hotel industry. Consequently, the SBA and SBA’s federal government-backed lenders will play a major role in the rescue of the hotel industry.
3. New Equity Partner Participation. I recently had a telephone conversation with an owner of a hotel portfolio with his properties concentrated along NAFTA trucking routes from southern California to south Texas. Hence, his group was enjoying much higher occupancy rates than other hotels based on business traveler and tourist related clientele. In the coming months, this fortunate owner was preparing to bargain shop for hotels that have experienced catastrophic revenues. Thus, a scenario like this creates an ideal situation for a win-win within the industry in the form of new investors seeking higher than normal returns by providing much needed cash injections for distressed hotels.
4. File for a Chapter 11 Reorganization. Too many hotel owners view the idea of bankruptcy as a life ending and fateful decision. On the contrary, it can be a fresh start. If a loan modification and/or loan payment deferment is not a possibility, then a Chapter 11 reorganization/restructuring of debt and protection from creditors under the U.S. Bankruptcy Code may be your best option.
Shae Armstrong is a corporate finance attorney with the national law firm of Stinson LLP in Dallas, Texas. Shae is recognized for his work involving private funds, investment companies, and loan arrangements within the hospitality sector. Shae has advised U.S. House and Senate offices, committees of the U.S. Congress, and policy and industry trade groups on alternative and international investment and lending matters. Shae’s work has been cited in numerous publications including the New York Times, Wall Street Journal, Dallas Morning News, The Guardian, and The Washington Times. He earned bachelor’s degree in accounting from Tulane University’s Freeman School of Business, a J.D. from the University of Tulsa, and an executive global masters in management from the London School of Economics and Political Science. Mr. Armstrong is licensed by the Supreme Court of Texas and the U.S. Court of International Trade.