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Borrowers Test Limits of Hotel Lenders

PHOENIX — Acting on bad advice, some owners of financially troubled hotels have been led to believe that if they stop making mortgage payments it will put pressure on lenders to restructure their loans at more favorable terms.

But Patrick Feltes, senior vice president of GE Capital Solutions, Franchise Finance, says that such a misguided approach is bound to backfire. The veteran Phoenix-based lender knows from experience. On June 1, one of GE’s clients failed to make its monthly mortgage payment on a limited-service property. The owner’s hardball approach after consulting with an attorney was apparently designed to force GE to make loan concessions.

“The next day [June 2] we hired a receiver, we hired [legal] counsel, and we went after them with both guns blazing,” says Feltes. “ Three days later, they made their June payment and promised us they wouldn’t miss any more payments going forward.”

The remarks from Feltes about the delicate relationship between borrower and lender came Wednesday morning during a finance panel discussion as part of the 15th annual Lodging Conference at the Arizona Biltmore Resort & Spa.

Feltes characterizes the cavalier attitude that some borrowers have toward their monthly mortgage obligations as a “distressing marketplace conversation”, yet he’s not surprised. “All these [owners] talk to one another. Someone may have a fairly large hotel that is not personally guaranteed, and they’ve been advised that the only way to talk to the lender is to not make a payment,” explains Feltes. “That’s not the case with us (GE), but they may believe that simply because they’re chatting amongst friends, and that’s the advice they’re getting, which is just not good advice.”

So, what is the best advice for hotel owners encountering financial problems?

“The best advice is to call the lender, if the lender isn’t already on top of your situation and you sense that there could be some difficulties in the future,” emphasizes Feltes. He encourages both parties to tailor a solution that’s workable for everyone.

“Believe me, the last thing we want back is a hotel, and the last thing we want is a default on our hotel loans. If we have a cooperative borrower, we’ll do about anything we need to do to rectify the situation for both parties.”

The three-day Lodging Conference runs through Friday.


Quotable: “It all does come back to employment. It’s common sense that you’ve got to have the jobs to have the income to go out there and spend. We’ve got a real interesting situation in this country where we ship a lot of jobs overseas, and I know that’s a controversial statement because you can save money through globalization. But at some point, if you ship too many overseas, you’ve got a problem. They were debating this issue back in the 1840s in Congress. There is some great stuff you can read out there about the exact same arguments.”

Chris Macke, chief executive officer, General Equity Real Estate, talking about the key metric that will lead the U.S. out of its current economic malaise

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