3 minute read
The DOWNTURN OMG, Now what do I do?
BY JOSE PINTO
The obstacles a hotel owner / investor faces once their hotel revenues decline by factors beyond their own control; such as pandemics, strikes, social unrest and others like, the new hotel competitors entering the market, cash flows fall just goes negative and tensions start rising.
As so, the upper-cycle starts to slow and the Owners/Investors, who have relied on their management company, start no accepting their words and losing the trust, and therefore start seeking independent advice in advance of a final default. Hotels and hospitality are different from most other businesses and as we say “what we didn’t do today” it cannot be done tomorrow, it’s gone”. In hotels and hospitality services we must do today what we have to do today, we cannot leave for tomorrow. Be focus all the time especially during crises.
It’s easy to see just how many facets/ constituents the owner or investor has to put up to communicate and interact with and especially with their lenders who are expecting their returns. Knowing that cash flows will be insufficient to their hotel debt service or pay off the loan at maturity is the first step.
Not every through such, in his vast career does focus on the financial interests of ownership. Each case it’s a case and no case is the same for every property and every ownership. Costcutting, no paying suppliers, utilities and laying off employees are the first steps that a consultant goes through most of the time, without in a lot of cases analyzing the overall operations, administration and financial status. Creating any conflict or failing to interact appropriately with just one of the intervenient (internal or external), it could immediately ignite bankruptcy and closure.
Not every hotel consultant has the experience to deal with negative financial factors, only a very experienced one, who has gone
The goal of an experienced consultant and his team is to find the way to align between, lenders, brand management and the manager. Let’s dive into some scenarios.
CONFLICT OF INTERESTS BETWEEN DIFFERENT PARTIES WHEN NOT PROPERLY IDENTIFIED CAN ADD LARGER DISRUPTIONS.
Sometimes the best of intentions to solve a debt by allowing the Brand Management to implement Property Improvement Plan or “PIP” can be considered a conflict of interest, thus is not advisable before all is revised.
Keep in mind: An experienced consultant can objectively analyze those PIP items that provide a return on investment for you to negotiate with the Brand Management or the Manager.
By finding a senior or experienced consultant early in the process is key to improve cash flow and to communicate a plan of action to you in order you go to the Lenders to modify the terms of the loan before anything.
In a short term how to improve your cash flow
A turn around increased cash flow can take up to 2 years , all just depend on the intangible factors and when interactions with the different constituents can start..
Among other Solutions you should think of:
• It’s important you receive objective advice on how to improve future cash flows, “take your business from RED to Bleu”
• Negotiate your overall Management fees
• Review and agree on new loan terms
• A new equity partner with fresh capital will be a great choice. Apart from injecting “new life” it will also boost confidence to all stake holders
• Each and every situation will require great negating skills, objectivity, and a lot of flexibility apart from being agile on decision making.
Finally hire a 3rd party marketing and financial consultant with experience to analyze your market, demographics and your competitive position. Let them recommend the best structure, services and new image.
All advisory “board” must start as early as possible. Be aware that the market is full of demagogues. Don’t waste your precious time listening to them and to others that have nothing on their agenda than entertaining you and see you falling.
