How to Avoid Hotel Bankruptcy

By Andrew Glincher Office Managing Partner, Nixon Peabody LLP | October 28, 2008

Today, we have the added factor of the fear of terrorism causing many would-be travelers in the United States and around the world to feel more secure staying closer to home - placing the entire travel and hospitality industry in a precarious position.

Although the stronger properties seem to be managing, and will likely survive to see another upswing, many others - independents, smaller hotels with less defined brands, properties where margins were lower and vacancy rates were higher even during good times - are feeling the economic pressure. This is particularly true of hotels that may have taken on too much debt and are now faced with insufficient cash flow.

How should they deal with these financial woes? The most important advice one can give to a property owner in this situation is first and foremost to be honest with yourself and confront the problem directly, proactively, and as early as possible. Wishing the problem away will not work, expenses are not going to go down, nor will revenues increase on their own, and ignoring your bankers is not going to make them go away.

Following are a few steps hotel owners need to take when they begin to recognize the signs of financial distress:

Take a hard look at operating cash flow and match it up with debt service. It's important to be very comfortable with projections for the foreseeable future and feel secure in your ability to make these payments.

If cash flow is insufficient, initiate discussions with your lenders. Don't wait until you've missed payments and they come to you. In most cases, if you can provide reasonable justification, they may prefer to work with you to restructure the debt rather than to force you into bankruptcy. Maybe the term of the loan can be lengthened, maybe it can be refinanced at a lower interest rate, maybe payments can be made based on cash flow, maybe they'll be willing to defer certain payments for a period of time in return for larger payments of interest or some form of shared appreciation down the road.

Choose a Social Network!

The social network you are looking for is not available.

Close

Hotel Newswire Headlines Feed  

Peter Goldmann
Mary Gendron
Kristie Willmott
Rocco Bova
Bonnie Knutson
Mark Simpson
Alan Villaverde
Richard Takach, Jr.
John Mavros
Edward Donaldson
Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.