As RevPAR Drops, Workouts to Rise

With RevPAR expected to drop precipitously in 2009, lodging industry insiders are gearing up for a surge in loan workouts and possibly even foreclosures. Last week, PKF Capital launched its Distressed Hotel Solutions Program with a mandate to aid over-leveraged hotel owners with debt restructures; strategic asset planning; management changeovers; note or property sales.

Bob Eaton, the San Francisco-based executive managing director of PKF Capital, says that lodging properties usually take the most immediate hit when a recession strikes. “The effect of bad economic news is probably felt more quickly at the front desk of a hotel than it’s felt in the rent rolls of an office building,” he says. “In other words, if a company cuts back on travel today, that means that tomorrow a hotel room that would otherwise be occupied is not. You’ve got literally millions of one-day leases.”

PKF recently worked on two deals that would qualify as distressed situations. In October, it arranged the sale of the 86-key Hotel Montgomery in San Jose, CA on behalf of Gramercy Capital, which had taken back the property in a foreclosure. The buyer, Khanna Enterprises, paid $12.4 million for the independent boutique property, with the seller providing financing. In the other transaction, the 44-unit Rosario Resort and Spa in Eastsound, WA, was sold via an auction for $5.9 million. It is currently closed for redevelopment. “The owner needed and wanted to sell but didn’t want to do a classic marketing program because that had been done several times before and it hadn’t worked,” Eaton recalls.