What is Hotel Receivership?

The Receivership Process

When a lender determines that a hotel is not being managed in an efficient or profitable manner, the lender may decide to remove control from the borrower and seek the appointment of a court-appointed third party, or "receiver" to avoid bankruptcy proceedings and liquidation of assets. Additionally, an owner/borrower not currently in charge of a hotel may seek receivership for the same reason. The main goal of hotel receivership is to secure and stabilize a hotel by making management and other necessary changes to enhance the hotel's profitability and value. The receiver is not an agent for the lender; it is an intermediate third party hired to protect the property. In the case of most hotel-motel projects, most receivers are hotel management companies.

Some common duties of the receiving organization:

• Take possession of the hotel and all related bank accounts, keys, codes, records, etc.
• Oversee management to ensure the hotel is operating soundly.
• Create new operational and accounting protocols.
• Determine if the property requires major maintenance, renovations or capital improvements.
• Notify all creditors and suppliers of the appointment as the receiver.
• Review and determine if franchise agreements, insurance policies, vendor contracts and leases need to be continued, terminated or renegotiated.
• Make all necessary court reports.
• Report progress to stakeholders.

When is Receivership a Good Option?

The main purpose of a receivership is to remove control from the borrower, implement management and other necessary changes, and help determine how to remedy property distress. Consequently, receivership is a good option when the distress is mostly a result of the hotel's current management issues. A receiver often replaces old hotels managers with new, more competent management to enhance profitability and value.

What are the Hazards of Choosing the Wrong Receiver?

Hotels are unique business entities with needs that differ significantly from a non service-oriented business. For instance, distressed hotels often need extensive renovations or have liquor and gaming licenses. Additionally, some hotels are limited-service while others are full-service. The most effective hotel receiver will display a thorough knowledge of the hospitality industry and the understanding that each hotel is a unique, operating business requiring its own distinct receivership strategy.