In a Commercial Observer op-ed, partner William A. Brewer III examines the mounting financial pressures facing the hospitality industry – and the ensuing legal battles over control, contractual rights, and financial exposure that emerge when hotel financing arrangements unravel.
With elevated borrowing costs, looming debt maturities, and deferred renovation expenses complicated refinancing efforts, Brewer argues that even profitable hotels can face distress when the financing underlying their acquisitions no longer make economic sense.
Brewer points to two recent developments in Texas: the Chapter 11 bankruptcy of American Hospitality Properties REIT in Dallas, and the foreclosure and subsequent $41 million sale of the Thompson San Antonio hotel. While the bankruptcy illustrates the complexities of maintaining hotel operations amid competing creditor claims, the Thompson transaction demonstrates how foreclosure can leave lenders with continuing financial exposure even after taking ownership.
“Foreclosure may give a lender the keys to a hotel – but it also hands over the headaches of running one,” Brewer writes.
For borrowers and lenders alike, Brewer argues that resolving ownership or control does not necessarily resolve the underlying financial and legal risks. Cash collateral arrangements, guaranty provisions, and franchise agreements can ultimately determine who bears the consequences when hotel investments falter.
“The market may have rewritten the assumptions underpinning these investments, but it will be a complex array of contracts and common law – and the battles over their enforcement – that will determine who pays the price,” Brewer concludes.
Read the full op-ed in Commercial Observer here.