As the hotel investment world in 2009 painfully deals with a slumping market and problem loans, we recall that in 1993, Bruce Baltin, Senior Vice President and Consulting Practice leader in Los Angeles, wrote about solutions for his clients then and they are still appropriate today. Evaluating Performance
‘Evaluating performance – or lack thereof – for commercial properties will continue to occupy a significant portion of lender effort as the decade wears on. Distinguishing among the hopeless dogs, the chronic underachievers, and the potential comeback kids will require the careful scrutiny and judgment of the property on a case-by-case basis, and nowhere will this judgment be more critical than the area of hotel loans. Fortunately, for both the diligent borrower and lender who find themselves in a down market, a workout can be a win / win relationship…’
Lenders have three choices when faced with a non-performing loan:
• Loan restructuring – the workout solution.
• Negotiate a ‘deed in lieu’ of foreclosure or other method of transferring title, or
• Instigate title contest through local courts or, potentially, the federal bankruptcy court.
‘If the lender believes that the borrower in place can optimize cash flow to the lender, he will be far more motivated to restructure the debt. On the other hand, if the lender perceives operational or managerial weaknesses on the part of the borrower, he will be induced to push for control of the asset…
…The weaker the lender’s position relative to collateral and the weaker the asset itself, the more costly will be the process of taking possession versus restructuring the debt.’
http://www.htrends.com/article39979.html
r e v i e w e d b y Moishe Alexander, CFC Canadian Funding Corp CEO