These are tough times in the hotel business. The recession has squeezed room rates and net operating income. The credit crunch means new borrowing is available only at lower loan to value ratios near 50%, on already beaten down values. At the same time, many tens of billions of dollars of existing hotel loans are maturing or otherwise in default, leaving the owners with little ability to sell or refinance at for amounts sufficient to pay off existing debt.
However, out of problems come opportunities. For many owners, the next chapter in their hotel's storied history may be Chapter 11-of the Bankruptcy Code. That may be good news for hotel buyers, because while there are pitfalls, there are also unique opportunities in the bankruptcy process for buyers of hotels to reduce costs, increase value, and even obtain unconventional financing terms not otherwise available.
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