Seeking Advice in Troubled Times Presented by: Natalie Francoeur
Presented by: Natalie Francoeur
As the economic climate continues to deteriorate, businesses are being forced to re-evaluate their operations. Hotels and resorts are no different. Many owners are being forced to examine their operations with a critical eye in the hopes of finding ways to cut costs without impacting services to an unacceptable level, all in the hopes of being able to meet ongoing financial obligations.
With drops in top line revenues resulting from lower occupancies, or the dreaded combination of lower occupancies and lower average daily rates, hotels are struggling to generate sufficient cash flow to cover debt service payments. With the threat of defaulting on loan agreements, some owners are working with their lenders to address potential issues before the time for workable solutions expire. At the end of the day, lenders are not hotel operators, nor do they want to be. Lenders are not thrilled with the prospect of being saddled with the responsibility of managing repossessed hotel assets as their plates are simply full enough managing their existing portfolio of loans. It is therefore in the best interest of both parties, owners and lender, to manage the relationship with care and to introduce flexibility where possible so that obligations can be met in an acceptable fashion with the goal of keeping lenders as lenders and owners holding their assets.
Some owners are recognizing the potential troubles that lay ahead and are enlisting the services of professional consultants to evaluate operations with the hopes of finding creative ways to alleviate some of the strain during these tough economic times. Some owners are even coming to the table with their lenders in an effort to partner through the down turn. This type of collaborative effort is a sign of a healthy working relationship between lender and borrower and demonstrates the desire of both parties to work to find effective solutions to the difficult situations that arise.
We at Pinnacle Advisory Group have been involved in a number of engagements with both lender and owner. We have seen the two parties come together with the decision to retain the services of a professional consultant. The underlying question that is asked of Pinnacle when we are brought in on an engagement with a potentially troubled asset is, “Is it just the market (conditions) or are there things that we can do operationally to adjust?” Often times the answer is “Both.” It is no secret that most markets are experiencing significant drops in occupancy and average rates, and the expectation for recovery is still uncertain in many cases. However, with the engagements that we have worked on, we are often findings that the properties are facing operational challenges as well that perhaps were more easily masked by a stronger economy. Unfortunately, the current economic environment is unforgiving and leaves no room for inefficiency.
With our collective expertise, Pinnacle is able provide an independent evaluation of an asset’s operations and to suggest alternative and creative solutions to identified challenges. Our depth of knowledge in market analysis, operational and financial reviews, valuation and investment counseling and asset management provide a wealth of experience on which to draw and allows us to tailor our services to fit the needs of a particular lender, owner or operator.
- Asset Management – In serving as a liaison between owner and manager, we aid the achievement of optimal asset performance through oversight of the strategic planning and budgeting process, quarterly and monthly meeting to evaluate the attainment of set objectives and monitoring of marketing, operational and financial goals and targets.
- Valuations – We prepare market valuations, both current and projected, by certified appraisers, to aid the decision-making process of owners and lenders in the evaluation of hospitality assets for sale, purchase, re-financing or strategic general planning.
- On-Going Workout Support – We can assist with all aspects of a workout which includes but is not limited to strategic asset management, valuation, and the restructuring of loans.
Creativity and flexibility will be the keys for many owners to weathering these difficult economic times. While not all factors affecting the downturn in operations and profitability are under the control of owners and/or managers, it will be critical to recognize that there are strategies and techniques that can be employed to alleviate some of the strain. Often times bringing a fresh and independent perspective to the table can uncover undetected opportunity for improvement. Exploiting these opportunities in these down economic times may prove to be the difference between weathering the storm and succumbing to it.