THIS IS YOUR WAKE-UP CALL. IT’S FROM DARWIN.

What owner or operator looking at their competitive set wouldn’t agree that it is survival of the fittest out there?  Legend has it that when Marriott enters a market their strategy is to put their weakest competitor out of business.  Are you the weakest competitor?  Are you sure about that?  How are you priced?  Has your perception of the price/value for your property held up or have you been surprised to find that the customer isn’t buying at your rate?  Have you checked your Expedia reports?  Depressing aren’t they?

 Of course you remember Location, Location, Location.  If your hotel or resort is in that “last to fill” location, farther from your key demand generator(s) than your competitors you are in trouble.  If your property has missed its renovation cycle but there is fresh product in your competitive set you are in trouble.  If your hotel’s associates aren’t the friendliest or your resort isn’t the cleanest you are in trouble.  If you don’t have a “state of the art” revenue management effort you are trouble.  If you don’t have the right brand or the right manager you are in trouble.

 It is as if a bright light is shining on the Industry and no one is allowed make-up.  Combine that with the fact that you aren’t hitting your cash flow goals and you keep looking for more expenses to cut and you keep putting off those much needed capital items.  Remember how important it used to be to provide your associates with the tools to do their jobs?  And here’s the cherry on top, you need to drive volume from Expedia, Hotels.com, Orbitz, etc. etc., and guess what, the customer is buying hotel rooms like they are commodities and the price that you think will drive volume is $30 higher than what the Internet shopper has told you your room is worth.

 Ricky Bobby: “If you ain’t first you’re last”.  Probably silly when you first heard it, now it’s not so funny any more.

 It’s time to change your MO.  Look, IBM doesn’t build the whole computer anymore.  I would assert that if you try to do it all yourself you are likely to be that weakest competitor.  Whether you are an operator, an owner, a lender, a servicer, or a receiver, it is time you found experts who have a track record in difficult times and are willing to get their hands dirty.  The engine light’s on.  You need someone who can tell you what needs to be fixed now and what can wait.

 DON’T hire an asset manager who became an asset manager because he/she didn’t want to get their hands dirty.

 DON’T hire an asset manager who “creates value” by regurgitating numbers.

 DON’T hire an asset manager who creates needless work and aggravation for the operator, distracting the “General in the Field” from the tasks at hand.

 DO hire an asset manager who matches up peer to peer with the Operator’s corporate oversight.

 DO hire an asset manager that helps create the strategy.  An asset manager that get’s results by getting their hands dirty side by side with the operator – from revenue management to cash management to tactical capital deployment.

 Who you gonna call?

 ADVICE:  Keep your rate up in your core booking window.  Put an “Advance Purchase” rate out there to build base.  Do your research and find the right rate for the package channel.  Use opaque rates to fill distressed dates. And, oh yeah, win the group business that has the day of week pattern you need and watch your RevPAR Penetration Index increase.

The title is stolen from my favorite fictional anti-hero and Florida historian Serge A. Storms with due credit and apologies to Tim Dorsey who provided me with my Summer reading list.

Blipverts or Current Hospitality Sound Bites

It is highly likely that I am the only one geeky enough to have watched Max Headroom.  For those of you still with me, in the first episode of the 1987 science fiction television show Max Headroom, blipverts were new high-speed, concentrated, high-intensity television commercials lasting about five seconds. Their purpose was to prevent channel-switching during standard-length commercials. But they had the side-effect of causing the nervous systems of “particularly lazy, petulant viewers” to overload and their heads to explode.

As to Sound Bites, Mark Twain described the concept as “a minimum of sound to a maximum of sense.” It is characterized by a short phrase or sentence that deftly captures the essence of what the speaker is trying to say. Such key moments in dialogue (or monologue) stand out better in the audience’s memory and thus become the “taste” that best represents the entire “meal” of the larger message or conversation. Sound bites are a natural consequence of people placing ever greater emphasis on summarizing ever-increasing amounts of information in their lives.

By now at least three-quarters of the intial readers are gone.  Those of you left will now be rewarded with some current thoughts and facts on the hospitality industry.

1. According to Deutsche Bank the best potential buying opportunities are 9-12 months away.

2. A comment for the sponsors of hospitality conferences, if you are going to sponsor conferences (especially on distressed hotels and resorts) please have them in a hotel.  Choice Hotels International is sponsoring a webinar (cost $59) on Distressed Hotels: How Bad will it Get?  I have an answer, much worse if people don’t actually go to hotels.

3. According to Barclays, the underlying fundamentals of the lodging industry have been so weakened by the economic downturn that industry recovery is likely going to significantly lag economic recovery.

4. Bloomberg reported that as many as one in five U.S. hotel loans may default through 2010.

5. A University of California economist believes hotels will have the highest foreclosure rate of any commercial real estate sector.

6. Realpoint LLC said a third of the $8.6 billion in securities backed by hotel loans due in 2010 are at risk of defaulting.  Twenty percent of the $99.8 billion securitized loans due over the next 12 months are hotel loans.

7. The unfortunate reluctant owners of hotel and resort assets need distressed hotel/resort solutions that recapture the exposed value of their hospitality assets.  This hotel industry specific help should come in the form of hotel asset managers that offer comprehensive solutions from establishing control up to and including disposition.

HARDISTY BAXTER can be contacted through the web at www.hardistybaxter.com.

HARDISTY BAXTER PRESS RELEASE – 6/23/09

Hardisty Baxter “Get the Band Back Together” to Execute Distressed Hospitality Real Estate Solutions

Tishman Realty and Construction Alums Michael Hardisty and Philip Baxter get back together to form HARDISTY BAXTER, Hotel & Resort Value Solutions.  Specialists in distressed real estate, their collective experience includes over $1 billion in successful REO workouts of complex hotel and resort assets for institutional owners.  While they provide advice, they specialize in execution.  Starting with their new product, the Assessment of Risk/Opinion of Value (AROV), they develop, execute and/or facilitate the execution of every step of the strategic plan from “cradle to grave”.  Their new firm provides advisory services, asset management, management, receivership and brokerage services utilizing modular collaboration where it makes sense.

Los Angeles, California, (PRWEB) June 23, 2009 – Michael Hardisty and Philip Baxter team up to provide comprehensive real estate services for owners, lenders, and special servicers with distressed hotel and resort assets.

When a former client, then a senior manager in charge of a mixed portfolio of special assets at a major bank, suggested to Michael Hardisty and Philip Baxter that given their success with his distressed asset portfolio they get back together to execute hotel and resort work-outs they took him seriously. Michael Hardisty, formerly Executive Vice President of Lowe Enterprises responsible for Lowe Destination Development’s resort and condominium hotel development program, and Philip Baxter, a 25-year hotel industry veteran whose background includes multi-property operations oversight, asset management for large institutional owners, and significant acquisition and development experience, teamed up on a number of high profile work-outs while at Tishman Realty and Construction in the 1990’s.

Earlier this year they teamed up again forming HARDISTY BAXTER, Hotel and Resort Value Solutions, to offer their clients the benefit of their experience working properties such as the Sir Francis Drake, The Ritz-Carlton Mauna Lani, The Ritz-Carlton Kapalua, The Grand Palazzo (now The Ritz-Carlton St. Thomas), and the Hyatt St. John (now the Westin St. John) from lender control/acquisition through disposition. “We provide advisory services in the form of an Assessment of Risk/Opinion of Value (AROV) to develop strategic alternatives, but where we add the most value is in the execution of the strategic plan from beginning to end, up to and including disposition,” says Michael Hardisty. “Think of an Institution’s responsibility to its stakeholders in adopting and executing a strategy that recaptures the exposed value of its Hospitality Assets.”

Their collective experience comprises over $1 billion worth of hospitality REO work-outs including advisory work, receivership, asset management, management, and brokerage. Baxter says that relative to the growing number of hotel and resort loans that are in default, “there is a storm gathering and it is only a matter of time until the downpour begins.” With their experience, there is no doubt that they can handle heavy weather. Hardisty for example is the former CEO of The Hotel Del Coronado where he restored and improved the physical facilities while concurrently improving service levels, a task that required a significant restructuring of the legacy collective bargaining agreement. A Cornell grad, Baxter is perhaps the perfect compliment to Hardisty. An experienced asset manager and operator trained in accounting and finance, Baxter has a knack for hospitality innovation. His programs such as Beer Sommelier and 24 Hour Check-In/Check-Out have found their way into the pages of the Wall Street Journal, New York Times, and USA Today.

Contact: Philip Baxter, HARDISTY BAXTER, http://www.hardistybaxter.com/index.html, (310) 877-5364, pbaxter@hardistybaxter.com

A Reluctant Hotel Owner’s Decision Tree – Part 1

Let’s say that you now have a non-performing hotel or resort loan on your hands.  In fact you may have a few.  And, as you know, these are the things that gray hair is made of.  By the way, if you were doing this in the late 80′s and early 90′s like we were you probably already have a few gray hairs to show for it.

But for now, let’s talk gray matter.  As you know, there are some fundamental differences between hotel/resort assets and other real estate asset classes.  A hospitality asset’s value is generally calculated using a stream of future cash flows and this cash flow stream is driven by an operating business with many moving parts – market dynamics, operational efficiency, plant & equipment, brand/operator viability and encumbrance.  Add to that the most problematic of asset types, human assets…lots of them.  Let’s add another degree of difficulty to the value equation, leverage.  The owner’s return on investment (cash on cash IRR) is half of the Cap Rate equation, the other half of the weighted average cost of capital is the amount and cost of financing.  The problem here is the amount, zero to 50% or 60%.

According to Steve Rushmore and HVS, a liquidation sale will result in sale proceeds that may be 40% less than what the proceeds would be given a market sale.

The problem is – nuanced by REMIC considerations, the lender’s balance sheet strategy, special servicer requirements – there isn’t much of a market for hotel/resort assets now and it is likely that the hotel/resort will require funding to continue to operate.

What we do is provide the lender and/or special servicer with an Assessment of Risk/Opinion of Value that leads to a strategic plan.  That strategic plan can be a sale of the underlying note/security or it can be to take control of the asset through a variety of means.  We established our business platform to provide the initial assessment and collaborate on the strategic plan, and then to execute and/or facilitate the execution of the plan all the way through disposition.

We will continue to explore the various nodes of the decision tree in depth.  In the meantime, we would welcome the opportunity to discuss this topic in a theoretical or practical context in a scheduled teleconference.  See us at http://www.hardistybaxter.com/index.html