When a lender or special servicer takes back a hotel, the building doesn't stop running. Guests are still checking in. Payroll is still due on Friday. The franchise company still expects its fees and its standards. And very often, the people who were running the place already have one foot out the door.
We've handled REO and receivership assignments for a long time, and the first month looks a lot alike from one hotel to the next. Here's how we approach it, and what I tell lenders to watch for.
Week one: find out what you actually have
The first job sounds simple. Know exactly what you're taking over. That means the cash in the safe and in the bank, the front desk banks, linen and supplies, FF&E, keys, and every login to every system. If the prior operator controls the property management system, the payroll provider or the brand portal, getting that access moved over comes first. A hotel you can't see into is a hotel you can't run.
We also walk the building for life-safety issues on day one: fire panel, sprinklers, elevators, the pool, exterior lighting. A distressed hotel has usually been putting off maintenance for a while, and that risk now belongs to the lender. Anything that could hurt a guest or an employee gets fixed before anything cosmetic.
Insurance is the other day-one item. Property and liability coverage has to be in place, and if we're coming in as employer of record, workers' comp and employment practices coverage come with us.
Week two: the people
This is where most of the value is saved or lost. Good front desk agents, housekeepers and maintenance techs have options, and uncertainty makes them use them. We sit down with every department, tell them what's happening in plain terms, and make sure the first payroll under new management goes out on time and correct. That first paycheck does more for morale than anything we say in a meeting.
We also take an honest look at the managers. Sometimes the general manager is part of why the hotel got into trouble. Just as often, it's someone who has been holding the place together with no support, and once they have the right tools they turn out to be the best person in the building. You find out quickly.
Week three: vendors and customers
Vendor accounts have to be transferred, and some of those vendors will still be owed money by the prior operator. Sorting out what's critical (laundry, waste, internet, the elevator contract) from what can be renegotiated keeps the hotel open without paying a premium for the old operator's problems.
At the same time, somebody needs to pick up the phone and call the key accounts. Corporate clients and group planners hear about a foreclosure fast, and the quiet ones simply stop booking. A short call from the sales team saying the hotel is open, staffed and under professional management keeps that business on the books.
Week four: give the lender something to decide with
By the end of the first month, the lender should have a clear picture. That means a budget for the rest of the year, a capital list ranked by urgency, a sales plan, where the hotel stands with the brand, and a first look at what the property is worth today and what it could be worth with some work. That's what they need to decide whether to hold, reposition or sell.
Questions worth asking any operator
If you're a lender or servicer choosing someone for a special asset, a few questions tell you a lot. Have they done this before, and for whom? Can they step in as employer of record on short notice? How quickly can they take over payroll and the property management system? Who from their team will actually be on property that first week? And how often will you get financial reporting, and in what form?
A distressed hotel is still a hotel. Take care of the guests and the staff, keep the lender informed, and most of the value can be protected while the bigger decisions get made.
If you're working through a special asset and want a second set of eyes, you can reach me at 817-557-1811 or through our contact form. You can also read more about our REO and receivership services.