Heartbreak Hotels: Navigating Distress, Recovery, and Opportunity in the Times of COVID-19 #realestate #restructuring #distressed#hotelindustry

2. MARKET
OVERVIEW

3. Source: https://www.hotelnewsnow.com
Where Are We Today?
RevPAR Decline Was Unprecedented
Total U.S Rev Par YOY % Change 10/2019 – 09/2020
YOY change
-46.1%
-80%
-60%
-40%
-20%
0%
Oct-19 Jan-20 Apr-20 Jul-20
RevPARYOYchange%
-20.4% Peak Decline Post
9/11
-23.2% Peak Decline Post
Great Recession

4. Meanwhile Special Servicing Rates Hit Record Highs
Source: https://www.trepp.com/
26.04%
20.47%
2.27%
0%
10%
20%
30%
Sep-20Jun-20Mar-20
CMBS Special Servicing Rate (Lodging)
(March 2020– September 2020)
11.5 x
Increase in hotel assets held
by special servicers since
March 2020

5. And Yet, Not
All Hotels Are
Equally
Impacted
Source: Kalibri Labs; Data Current Through: 10/17/20; Last Updated: 10/26/20
U.S. RevPAR YoY % Decline

6. Grand hotels in urban centers
face substantial overhead and
the biggest challenges to recovery.

7. NOW
WHAT?

8. KNOW YOUR
PLAYERS

9. Know Your Players
Where is the
loan held ?
B piece or Junior
Note, held by a non-
bank lender
Loan is held by a
single bank
or a syndicate
Loan was transferred
to a REMIC as part of a
securitization
Special Servicer
Workout Group
Mezz Debt
1
2
3

10. Know Your Players
Special Servicer Workout Group Mezz Debt
Who are the
players?
Special Servicer, Directing Certificate
Holder
Workout Lender, Credit Department,
Senior Bank Leadership
Depends – can be originating lender,
or may be sold to a third party
What are the
guiding documents
/ agreements?
Originating Loan Documents, Mortgage
Documents, Pooling and Servicing
Agreement (P&SA)
Originating Loan Documents, Mortgage
Documents, Pledges or Guarantees
Originating Loan Documents, UCC
filings
What are the
guiding principles
for any
restructuring /
workout?
REMIC rules limit “significant
modifications”, may need to consult
with an attny & and get Rating Agency
Approvals
Banks have far more latitude in
restructuring; NPL ratios are
impacted, however and additional
capital must be assigned to bank’s
balance sheets
Mezz debt does not have a lien on the
building, but rather a claim against
the equity capital
Other
Considerations
• Challenging to get Servicer’s
attention, must be persistent
• Substantial fees in Special Servicing
• Be mindful of guarantor triggers
• More likely to proceed to
foreclosure
• Borrower has no visibility into the
P&SA re: the authority various
parties have to grant debt relief or
agree to other modifications
• Workout Lender will monitor /
assess entire banking relationship,
including all other products and
services
• May have little interest in
foreclosing and managing real
estate owned (REO)
• Banks will consider reputational risk
• Seizing the asset is not subject to
any mortgage regulations or
protections
1 2 3

11. ASSESS
YOUR HAND

12. Re v i e w l o a n a g r e e m e n t s , m o r t g a g e
d o c s , c o l l a t e r a l p l e d g e s ,
g u a r a n t e e s a n d o t h e r o b l i g a t i o n s
C o n d u c t a n a n a l y s i s a c r o s s y o u r
p o r t f o l i o
D e v e l o p a p r o p e r t y - b y p r o p e r t y
s t r a t e g y
A s s e s s i m m e d i a t e l i q u i d i t y n e e d s
C o n s i d e r w h e t h e r b u s i n e s s w a s
d i s t r e s s e d b e f o r e C O V I D , a n d w i l l
t h e b u s i n e s s m o d e l f i t p o s t - C O V I D
c o n s u m e r b e h a v i o r s
A r e t h e r e f e a s i b l e c h a n g e s w h i c h
c o u l d e n a b l e t h e c o m p a n y t o
s u r v i v e ?
Kenny Rogers, The Gambler
“You’ve got to know
when to hold ‘em,
know when to fold ‘em,
know when to walk away,
and know when to run.”

13. Creative ways to reinvent
 Repurpose - Student housing, micro-apartments, multifamily,
healthcare operations, and homeless shelters
 Rethink common areas – convert conference rooms into schoolrooms
 Away from home office space
 Private dining
 Distance exercise
 Meal plans for locals
 “Stay-cation” promotions
Marketing campaigns focused on Cleaning and
COVID protocols
 e.g. Hilton CleanStay campaign, Marriott “Commitment to Clean”
campaign
 Cashless transactions
 Robots for food delivery
 Contact-less check-ins and check-outs
New Technologies
Operational Strategies

14. Develop a Roadmap and
Communicate With
Stakeholders

15. Develop a Roadmap and Communicate
Stabilize
Operations
Strategically exit
certain properties
Prepare a 13 week
and six-month cash
flow
Communicate
strategy
Stabilize
Operations
01 Strategical
Exits
02 Forecast
Cashflow
03 Communicate04

16. LOOKING
FORWARD

17. Cash raised for
distressed real
estate funds
Targeted for
distressed real
estate funds
Source: WSJ, April 21, 2020