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Buying a Hotel in Distress

 

Buying a hotel…

…through foreclosing on the debt of a distressed property, could be a very exciting strategy for an entrepreneur and owner of a hotel company but it is one that you have to do with your eyes wide open.

 

it’s obvious when you look into buying a hotel in distress that there is going to be problems. Maybe deferred maintenance inside and out,  something as subtle as the bathrooms needing to be renovated. There might be a bad perception in the market of this property, this could be harmful for sometime.

 

One thing to remember is that the hotel is a living breathing place and tied to the community, Especially if it is a  full service hotel with a restaurant and other amenities such as a pool or conference center. There are also real people involved, people that are living through a very difficult situation while this hotel is in distress. They were worried about their jobs, they are talking about the hotels financial struggles, they are gossiping about the owner, they are going to be gossiping about you, the new owner! What does is this all mean for your investment? It means a couple things one is  that a lot of work that should have been done, like sales, marketing, community outreach and even day to day business of the hotel( including the future plans) probably has not been done.

 

What can you do? First look at the management team.

 

There are some positions you’ll be able to change  such as the General Manager, Sales Manager and other leader positions. However, changing the team under management is difficult, especially if it is a union hotel. You won’t be able to change your housekeepers waiters, front door men or kitchen staff. These people are your voice to the community. These employees are the ones who greet your guests, the first one the customer sees and interacts with.

 

The staff is the face of the hotel.  

 

There is a direct correlation between the people mentioned above and your online reviews the hotel recivivcesand trust us, the underwriter is looking at these reviews possibly taking them into consideration when buying a hotel and the risk associated.

 

Keeping the staff in mind, they have been demoralized, having spent more time worrying about their job and the uncertain path ahead.  Your challenge when you get that stressed hotel, is to change that culture.

 

Still buying a hotel? You may have to change the culture.

 

You can start by changing the management but just changing the head new gossip will start up about the new GM. 

One of the most important aspects of repairing a distressed hotel’s reputation is to circle back to the community at large, and that is going to take a lot of time and a lot of work to change that perspective to a more positive vibe.

 

Lastly, do not underestimate how long it take to turn these issues around.

 

It starts with the right team. The GM is the key person in a hotel. Make sure that person has experience in turnarounds. The right advisors, consultants and engineers that have worked in these situations as well as  a financial team that has seen these hotel lending opportunities, they can advise on what work is ahead.  Be prepared because you do not want to be the “dog that catches the car!”

Hotel Buying? Call us.