Inhospitable Times for the Hospitality Industry
Pat Culligan
Glenn Goerke
Hospitality Real Estate Counselors
Hilton Hotels
Kem Wilson Jr.
Wilson Hotel Management Company, Inc. Kemmons Wilson Companies
The U.S. Hospitality Industry
• Nation
– 54,000 Hotels
– 1.8M Workers
– 60% Leisure / 40% Business
30 % Distressed
• Memphis
– 241 Hotels
– 35% Leisure / 65% Business
(30% Group)
A lot of distress!
National RevPAR Trends
Source: Hotel Investment Strategies LLC based on Smith Travel Research and Laventhol & Horwath data.
The Hospitality Thrill Ride
RevPAR Trends
$66
$64
$62
Nation
$61
$57
$55
2005
2006
2007
2008
2009
$56
2010
2011
RevPAR Trends
$66
$64
$62
Nation
$61
$57
$55
$56
$51
$48
Memphis
$47
$44
2005
$44
2006
2007
2008
$42
$42
2009
2010
2011
Average Hotel Value/Room
The Equity Gap
2011
$84,000 Value
x .60 Loan
$50,000 Debt
2006
$99,000 Value
x .85 Loan
$84,000 Debt
$34,000 Gap
What – Me Worry?
Hotel Loans Maturing in 2012
$9.1B in CMBS
$15+B in Balance Sheet
Distressed Property
With comfort letter in place ‐‐
•
Bank takes over property ; hires property manager; Court appoints an approved receiver •
Bank has right to hold onto the flag until the License Agreement expiration •
Bank informs Hotel Franchise Company of intent to sell the Hotel
•
Hotel is listed for sale •
Interested Buyers bid on the distressed property
•
Contact Hotel Franchisor (ex. Hilton) before bidding on the property to begin disclosure process
•
The Hotel Brand determines if they wish to maintain Hotel in the system if an ownership change occurs
•
Seller orders a Product Improvement Plan (PIP) detailing the extent of capital work needed to retain the brand
•
Occasionally, PIP’s may be negotiated in term of content (ex. carpeting) and/or timing (ex. can we get a few extra months on one item or another)