old and new city buildings reflecting hotels are more than just real estate and how poor management drives hotel distress

After many predictions of waves of post-pandemic hotel distress, experts believe the limited distress arising in the market now is still primarily driven by operational missteps.

During the “Winning in the Distress Game” session at the 2024 Meet the Money conference, Kevin Gallagher, senior director at Trimont, said people need to remember hotels are operating businesses, and people can make or break financial outcomes.

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“Yes, there are economic [headwinds] and yes, there are issues with capital stack structures, but a great hotel is run by a great general manager and a great director of sales,” he said. “When you look at a distressed hotel, it almost always boils down to the competence of the people on the property.”

Gallagher said that remains true even for hotels with the backing of strong third-party management.

“A great general manager could overcome a mediocre management company,” he said. “A terrible general manager cannot be lifted up by a great management company.”

Building out a strong team is the first step for success in any hotel operation, said Jack Westergom, founder and managing director of Manhattan Hospitality Advisors.

Westergom focuses on operational issues first and foremost when he takes over as a receiver for hotels with severe financial issues. Turning operations around can help drive demand even to older, underinvested hotels, he said.

“You have to come up with creative solutions to find your market and tell them why — even though you’re distressed — you are the choice for them,” he said.

Part of that comes back to more aggressive sales and marketing tactics. Westergom said there is a difference between hotel salespeople today versus even just decade ago.

“There is a generation of order-takers not order-makers now,” he said.

While panelists said operations can be the key issue driving hotel distress, some noted it’s not the only issue.

Jon Kapit, managing director of investments at Access Point Financial, said the few hotels where his company is seeing distress are either from operational issues or “capital markets issues.”

“So I wouldn’t call it a distressed property, but it’s a stressed capital markets issue, where the hotel is covering debt service but the loan’s maturing,” Kapit said. “And due to current dynamics, they can’t get us out. So the question is, what do you do? Do you extend? … We’re not a loan-to-own shop. We don’t want to take things back.”

Read the full article at CoStar