Helped a Private-Equity Firm Manage a Default and Rebuild the Value of a Hotel Investment

When the COVID-19 pandemic hit, an upscale hotel specializing in group business saw occupancy evaporate. The loan structure had equity participation and mezzanine debt, and the amount owed exceeded the value of debt. In April 2020, the borrower abandoned the property. The lender asked SitusAMC to try to rebuild value so it could recoup any part of its investment, because based on an appraisal at the time, there was a total loss of its position.  

SitusAMC filed the judicial foreclosure in October 2020, and moved for the appointment of a receiver with hospitality expertise to oversee management. For six months, the team maintained minimum staffing to keep systems operable and perform repairs and maintenance. SitusAMC actively monitored expenditures, particularly staffing costs, and worked with union legal counsel to ensure the hotel conformed to the terms of its collective bargaining agreement. SitusAMC also watched demand trends and developed forecasts to determine when to re-open, to avoid further operating losses. The property had lost its marketing manager, so the property manager temporarily filled the position until another manager could be identified. Then the team worked aggressively to obtain new business. 

After 17 months, the hotel re-opened in July 2021. Transient business rebounded with weekend guests and travelers on short business trips, soon compensating for the lost group business. SitusAMC developed $17 million in net cash flow in the first full year of operations, with income outpacing expenses. The hotel expects to generate $22 million to $24 million in profit in 2023, which would match pre-COVID performance, and its value now surpasses the debt.  The hotel management agreement expires in 2024, and SitusAMC is working to negotiate an extension. Once the foreclosure is completed, the property will be sold, and the proceeds used to repay the senior secured debt and all operating advances made to date.