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04. Nevada Hotel Partnership

SITUATION:

This partnership organization owned and managed several secondary tier hotels near the Las Vegas strip. Due to the recent economic downturn, two of the client's hotels (Major International Hotel Flag), were struggling with the severe devaluations seen not only across the national commercial real estate market, but more specifically across the hospitality sector. Additionally, sales revenues significantly declined as a result of a diminished supply of tourists and recreational travelers in 2009-2010.

The hotels' owners faced increasing cash flow problems due to low market room rates and decreasing occupancy since late 2008. Furthermore, the drop in commercial property values in Las Vegas in 2008-2009 made any hopes of securing adequate refinancing unrealistic. To further compound the issues, the principals were obligated by personal guarantees on the notes for each hotel.

Over 2009-2010, the recession yielded a dramatic decrease in tourism and recreational spending—the major driving forces behind revenues in recreational destinations such as Las Vegas. This resulted in the hotels being unable to continue meeting debt service requirements on their mortgages. Consequently, the loans fell into payment default and were tracked toward foreclosure.

Within a matter of weeks, the lender had coordinated foreclosure proceedings. The principals who had signed personal guarantees on each of the notes were facing substantial liability.

Contemporaneously with their foreclosure actions, the special servicer also decided to sell the mortgage notes at auction. The borrowers still saw great, long-term potential for these assets and were not prepared to lose them.

WHAT WAS DONE:

The Team was retained by the hotel's ownership organization to intervene and secure a solution with the lender through a discounted purchase of the mortgage note. The Team was able to negotiate a collective discounted payoff agreement between borrowers and the lender.

The Team's previous dealings with the lender and experience with the auction administrative proceedings provided valuable insight with respect to an acceptable bid level for the auction proceedings. The Team was able to correctly advise the clients with respect to the lowest amount necessary to secure possession of their hotels through the closed auction.

This acceptance of a discounted payoff resulted in an end to the foreclosure. The current borrowers were not only able to purchase the notes on both franchised hotels at a significant discount, but they also saved in excess of $3 million on fees, penalties, and the amount recoverable via the personal guarantees.

Shortly after the close of the auction, the owners secured possession of their Las Vegas Hotels. They saved over $3 million, in fees, penalties and personal guarantees. Ownership was now on track to maintain their franchise flags, stabilize their properties, and restore positive cash flows in the years to come. The Team's effective communication, insight and credible relationships with both the lender and auction agents helped the borrower to avoid the liabilities of an over-valued debt level on an under-valued property.