Background

• Two high-end resorts totaling nearly 900 rooms were built in the mid-1980s. In combination, the hotels have 11 restaurants, over 92,000 square feet of meeting and banquet space, two spas and multiple golf courses. Upon purchase in late 2007, debt in excess of $220M was placed on the two hotels, consisting of a first mortgage and two mezzanine loans. Due to the slowing economy, groups began canceling business starting mid-year 2008 resulting in a revenue decline of nearly 40% and Resort’s inability to pay the mortgages.

Objectives

• A discussion with ownership commenced to understand the investment objectives which were as follows:
  • Improve cash flow
  • Work with lenders to develop and implement a debt restructuring plan on the existing loans
  • Preserve owner’s equity and provide interim debt relief until there is sufficient cash flow to cover debt service

Results

• By developing a contingency plan with on-site property team, NOI for the 2009 budget improved by $1.2M. Resulted in a 7.5% NOI increase.
• Negotiations commenced with special servicer and mezzanine lenders for a forbearance agreement. Resulted in a successful restructuring of the loan documents.
• Contractual FF&E expenditure requirement was reduced from 4% to 3% of total revenues. Capital expenditures were limited to those that will preserve the asset, have a return on investment or comply with brand standards. Resulted in cash flow improvement by $820K.
• Timely and informative reports including cash flow models were created for lenders and owner. Resulted in immediate notification of hotel performance and ability to act quickly.