Sometimes it’s what we don’t publish that tells a good story. Such is the case with a comment we received Friday.
In the spirit of not permitting personal attacks and threats, we chose not to publish a comment in response to “GF Management makes most of recession.” In a nutshell, the comment took to task companies that are stepping in as management intermediaries for lenders who are taking distressed properties back from owners who can’t meet loan requirements. Along with some vulgar name calling, the user suggested companies that serve in that role should all go visit the devil.
It’s an interesting point of view as it exhibits a reality that often isn’t talked about in the open. Those owners forced to give up properties naturally will resent the companies that step in and take advantage of the environment. But to demonize those companies is the wrong approach. There’s nothing wrong with these companies stepping in to manage distressed properties for lenders. The practice is nothing new for the hotel industry—it’s just more visible now because there are so many instances of it happening. It’s hard to track down an exact number, but I’ve been told by experts that the number could be as high as one-third of the 52,000+ hotels in the United States.
The owners having properties taken back by the bank are looking for scapegoats. They got in too deep, then the bottom dropped out. There’s a simple calculation for that:
overleveraged hotel + underperforming market = holy (expletive)
When owners in 2005, 2006 and 2007 were racking up loan-to-value ratios of 80%-to-20% or 90%-to-10%—or in some cases 100%-to-0%—they really weren’t thinking of the future. They thought the good times would last forever.
They were among many owners taking advantage of the free-wheeling lending situation, just like companies like GF management are now doing in the aftermath of the recession. There’s nothing wrong with either scenario, as long as companies have a fall-back plan. That apparently isn’t the case for owners such as the one who left the unpublished comment.
C.K. Patel, president of BVM Holdings in Atlanta and chairman of the Asian American Hotel Owners Association, summed it up best during a panel discussion at the Hunter Hotel Investment Conference held earlier this month in Atlanta: “The majority of hoteliers are in trouble right now because they never thought of the exit strategy,” Patel said. “They only thought of entry.”
That is one of the best summations of the current hotel-industry status that I’ve heard. If you disagree, let me know. The story about hotel owners forced into giving up their distressed properties is under-told from the perspective of the owners. Drop me a line at email@example.com and we’ll get that ball rolling.