Failed Condo Hotel Turnarounds, Workouts, Bankruptcies and Opportunistic Investment

Hotel Lawyer on restructuring distressed condo hotels: Restructuring distressed condo hotel projects and loans secured by them is moving to the top of the list for many lenders, owners and investors. Condo hotel deals are so complex and varied that there is no single "silver bullet" to take care of all problems.

Combining JMBM's legal and business experience in advising on more than 100 condo hotel and hotel condo deals with a veteran condo hotel expert, here is a 3-part article to explain: Part 1: the background and structure of the typical condo hotel, Part 2: critical differences between condo hotel restructurings and those with traditional hotels, and Part 3: a unique approach to working out some troubled condo hotel projects.

Long-term we are very bullish on well-conceived and executed condo hotels. The problem is that stakeholders have to survive through the short-term, and except in exceptional situations where there is unusual sponsorship, unique windows of financing, and special demand factors, the next few years will be very tough sledding. Properly structured condo hotels that have gotten financing for construction and end user sales, and completed their sales efforts prior to the housing bubble's bursting are fine. There is nothing inherently bad about condo hotels

JMBM's hospitality lawyers believe that condo hotels have earned an enduring place in hotel mixed-use development. They are viable. They make sense. They will continue to be very useful. Damning failed condo hotels in the current downturn is like bashing single family residences in the housing bust.

There is nothing fundamentally wrong with this type of property -- when it is structured properly and built in accordance with sound economics of supply and demand. Yes, there are a lot of poorly conceived and executed condo hotels that deserve their fate, but many sound projects are suffering now too.

A landscape littered with distressed condo hotel opportunity (and danger)

Although there is nothing wrong with the condo hotel concept, the landscape is littered with stalled condo hotel sales construction projects frozen in the financial deep freeze. Construction lenders, like Lehman, have reneged on binding loan commitments, and end-user financing has virtually disappeared. Many great projects are now in deep distress. Most condominium buyers are hiding under the bed at home, saving their money and hoping they don't lose their jobs. Most lenders are ignoring even great projects because they are hoarding capital to cover their capital depletion from derivative losses, no documentation home loans and investments with the likes of Bernie Madoff.

As the optimist said, "Somewhere in here there has to be a pony!" The question is: Can you find it? read more