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Hotel Lending in the 1990s

Amateurs Beware

Hospitality Industry Group in the law firm Jeffer, Mangels, Butler & Marmaro, in Los Angeles and San Francisco, California.

P. Peter Benudiz

Hospitality Valuation Services, based in Mineola, New York.

The hotel industry's recovery from recession creates great opportunity for lenders and buyers. Considerable equity has been attracted to the market and there are opportunities for savvy lenders to make solid, profitable loans with favorable pricing elasticity and little competition. Would-be lenders, however, must remember that general real-estate experience is not sufficient for analyzing hotel deals because hotels are different from other commercial properties. Nevertheless, hotel lending does not have to be speculative-provided appraisals, market studies, and the necessary legal structure and documentation are handled properly. The operation and the revenue stream it produces are critical elements in evaluating the hotel's worth as security for a loan. From a legal standpoint, lenders must get more than a typical mortgage for security purposes in the event of default. Issues involved in taking over a property in default include securing access to the hotel's income, maintaining liquor licenses, and having control over existing management contracts and franchises in the case of another default.

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