Pulling together during this most unpredictable of times for the hotel industry, a “team of rivals” has formed a joint venture to provide a beginning-to-end hotel receivership platform for financial institutions, banks, special receivers and debt fund servicers throughout the United States, the Caribbean, and Canada. The “rivals” spearheading this joint venture, Frontline Real Estate Partners: Hospitality Division, include: Frontline Real Estate Partners Principals Matthew Tarshis and Joshua Joseph; Aries Capital, LLC, Chairman and CEO Neil E. Freeman; and Michael Shindler, President, Four Corners Advisors, Inc. The four partners described for LODGING the genesis, objective, and outlook for this sorely needed service during this difficult time for the hospitality industry in particular.
What is Frontline Real Estate Partners: Hospitality Division and how did it begin?
Shindler: This is a joint venture (JV) between Frontline Real Estate Partners, Four Corners Advisors, and Aries Capital that provides a beginning-to-end hotel receivership platform for financial institutions, banks, special receivers and debt fund servicers throughout the United States, Caribbean, and Canada. Matt [Tarshis] and Josh [Joseph] at Frontline came up with the idea to provide receivership services to the hotel industry, and they reached out first to Neil [Freeman] at Aries, who in turn, reached out to me at Four Corners.
What was the genesis of the idea itself?
Tarshis: Frontline, which represents special services and financial institutions throughout the country, offers services including receivership, management, leasing, and disposition for lender-owned assets. However, hospitality was a niche that we were not really involved with because, in our estimation, it required a really specialized skillset and people who work in that sector. We reached out to Neil and Michael—who already had a strategic alliance to provide an advisory, transaction, and financing platform for hotel developers and investors—to help us serve clients that had exposure to the hospitality sector.
What prompted the timing of this decision to form Frontline Real Estate Partners: Hospitality Division?
Tarshis: As far as timing goes, the 90-day forbearance agreements negotiated with many borrowers in the hospitality space were ending in June and July. We know secondary discussion between lenders and borrowers as to how to handle those assets could involve difficult decisions. We are therefore expecting things to continue to ramp up here.
Shindler: Underscoring Matt’s projections about upcoming defaults by hotelier who may want to turn to us are some widely available numbers. About 3,000 commercial mortgage-backed securities (CMBS) loans secured by hotels represents some 60 to 70 percent of the entire CMBS marketplace. Among those hotel loans, some 15 percent have already been delivered to the hands of the special services, meaning that, for whatever reason, these loans are in default; and another 35 percent or more are in the early 60-day truancy period.
How does your group uniquely meet hotels’ financing needs now?
Shindler: It’s now been 10 years since banks and special services went through a recession, so they may not have the expertise to evaluate the types of loans needed to rescue hotels in the current environment. Where our group knowledge is invaluable is the combination of the hotel experience Neil and I bring and the fundamental relationships that the Frontline guys have with lender clients, who always want to recover as much of their loan as possible.
Freeman: Yes, we all have different capabilities and relationships. Frontline, which was already considering expanding into hotel receivership, had the relationships and staffing to do the core reporting and other detailed analysis. Michael [Shindler] had the operating experience, so, together, he and I bring deep knowledge of hotel financing, ownership renovations and overhauls, and other real estate deals. This means we can go beyond just identifying problems to help counsel the lenders and find real solutions.
What has the response been since your announcement of the JV?
Shindler: The first wave of response to the commercial mortgage alert was from people who pretty much wanted to profit from properties they regarded as distressed. But when our own press release and social media kicked in, we received an enormous amount of support for the type of rescue services we actually wanted to provide and that we had so quickly organized to offer them.
Joseph: The response we at Frontline received from everyone—from our service clients to our traditional bank clients, credit union clients, to our lawyer friends and clients and colleagues—has been extraordinarily positive, and we’re proud and excited to bring our symbiotic complementary skillsets to the table to provide something wonderful for our clients.
How do you expect to figure into the eventual recovery, whatever shape it takes?
Freeman: Right now, there’s a lot of confusion and uncertainty as to what is going to happen in the market—what borrowers and lenders will do and what will become of the assets, and we’ll be able to help with those decisions. This may depend not just on the borrower’s capital but how the property’s land can work for a specific asset. We’ve been receiving a lot of inquiries from people who have raised capital to add function and space. Others are looking to reposition the asset, for example, converting hotels into affordable housing and senior housing using tax credits and other forms of sponsorship.
Shindler: I think the industry’s recovery may take a while, possibly depending on a vaccine. However, there are many different types of products needing our help. The newer-generation properties out on the interstate highway system are generally still the best performing hotels we’ve got, and are likely to recover relatively quickly if they can get enough rescue funds to stay afloat. However, recovery is likely to take much longer for large group hotels for which loans will be more complex.
Joseph: As with recovery from the 2008-2011 downturn, we’re going to see creativity. As Neil and Michael mentioned, there may be too many hotels already, so some that exist or are in progress may become something else. It will be up to the real estate investors, real estate experts, and workout experts to work with lenders and figure out the best way to reposition an asset.