The Role of an Impartial Hotel Receiver. According to a May 2022 article published by Trepp, close to 9% of all CMBS loans in the hospitality asset class were in special servicing. Although the year-over-year default rate has improved, there may be signs of trouble ahead. An earlier Trepp article noted that $38 billion in hotel loans are scheduled to mature by the end of 2024. With tightening capital markets, ease of re-financing may be uncertain. Moody’s also weighed in, reporting that a handful of once-delinquent hotels have stopped making payments due to “problems and issues” unique to those hotels. This led to a slight uptick in default rates from 7.7% in February 2022 to 7.8% in March 2022. Nevertheless, with possible recessionary pressures on future hotel demand, lenders may be exposed to an increase in hotel defaults. This means that special servicers could need a receiver to help preserve the property’s value while the lender and borrower work through the default, restructuring or foreclosure process.
A receiver’s role is to collect revenue, maintain and repair the property relative to physical or personal threats to safety, manage the existing operation, ensure that bills are paid, and otherwise take all actions necessary to preserve the property’s value.
Here are a few items that are best worked through an independent, impartial receiver.
Cash and Deposits
The receiver requires borrower or borrower’s counsel to deliver all cash, security deposits and other property assets within the borrower’s control, as indicated in the receiver appointment letter. If the bank accounts are in the manager’s name (rather than that of the owner), the receiver will likely request that the manager and owner abstain from using these funds without receiver approval. Furthermore, the receiver will also mandate that “view access” be obtained on all accounts until funds are transferred to a receiver-controlled account.
