How to choose the best operator for a distressed hotel

In today’s difficult economy, “distressed hotel” has achieved the status of hot new buzz phrase. However, distressed hotels have been around probably since the second hotel in history opened across the street from the first. Even in good times, hotels can become “distressed” for any number of reasons—improper financing, mismanagement and overbuilding, to name a few.

Desperate times call for desperate measures, but not for making uninformed decisions. Underperforming properties, especially in today’s deep recession, require experienced hoteliers who have worked through multiple economic cycles. In the past six months, there has been an influx of companies claiming to have all the answers but lacking the experience necessary to properly operate and turn around these underperforming hotels.

There are only a handful of companies that truly have the experience to help these properties through the current crisis. Here are the criteria that distressed hotel owners, lenders and special servicers should insist upon:

• Chose an operator with proven experience through at least three hotel economic cycles, with a significant majority of that time dedicated to the practice of providing services for underperforming hotels.
• You wouldn’t buy a used car without looking under the hood, don’t hire an operator before you see a list of hotels they have turned around and their results. 
• Check references from institutional investors and workout groups from major international law firms that can verify an operator’s ability to manage in all types of underperforming situations.
• Make sure the operator has multiple proprietary systems in place that can be tailored to each individual hotel, including a daily monitoring system of industry and property trends. 
  In addition to operating expertise, verify the company has the asset management skills to maximize the asset for the short-term and to develop an appropriate exit strategy.

If the operator you choose passes these tests, chances are much better that the company has the ability to take the “distress” out of your hotel.