It is a time for patience, understanding, and the realization that we - lenders, borrowers and our local economies - are all in this together.
I have been traveling the country recently and have become dismayed at the stories I am hearing from the hotel industry, particularly the limited service segment, regarding their inability to survive this economic downturn.
The reasons given vary, but there is a common theme: Due to overall reduced demand, and downward pressure on rate, currently, despite excellent historical performance, the debt amortization schedule cannot be met; or a balloon has come due and there is not any financing available; or, if there is financing, the required LTV ratio of the lender will not support the renewal or refinancing without a significant equity contribution. Other broad-based concerns are that the borrower cannot locate the right person to speak to regarding a possible solution (particularly in remote lender situations). Or if they do find that person, often the lender will not be open to discussions with the borrower until the loan is in default.
The borrowers (again, historically, some of the best operators this industry has) want to survive. Clearly, it is not in the best interest of the lenders to take the property back, so they want the owner to survive. Governments realize how vital it is to the economy in general that these small businesses (relatively speaking) survive so people remain employed, so federal, state and local taxes get paid, and so competition in the industry remains robust. And the vendors that serve these businesses want them to survive.
The problem is compounded by lenders that do not have ties to a community and lack any empathy for the ripple effect a foreclosure has on the community. We need remote lenders to immediately identify a contact person that the borrower can speak to. We need the ability to have conversations on solutions before a default occurs. We need relief from a short-term regulatory scheme that focuses on the short-term interests of the lender and government, while ignoring the long-term impact on themselves and the communities. We need a system that is flexible, with the ability to respond prudently, but also creatively, to economic cycles, and we need a system that nurtures long-term economic sustainability, which is so vital for our local communities and its citizenry.
This debt and liquidity crisis deserves our attention. We need a collective dialogue in Washington, D.C. on this issue and on possible solutions. We need legislators and lenders to understand that many of these excellent hotel owners and operators are trapped by a banking/lending regulatory system that focuses on a very narrow, short-term view (the impact of current LTV ratios on balance sheets), while ignoring the broader and longer term picture of historical positive performance, economic cycling, employment, tax bases and survivability of a community.
Now is the time to remember what Eric Hilton has been saying for years: It is estimated that the travel, tourism and hospitality industry employs one out of every ten workers in the world; it is an economic powerhouse in our local and global economies. It deserves our collective attention and dialogue.