Hotel Online
News for the Hospitality Executive


advertisement
.


Security Interest in Golf Course Revenues Cut Off by Bankruptcy


 
For the most recent update on this topic, click here

By Jim Butler
and the Global Hospitality Group®
Hotel Lawyers
| Authors of www.HotelLawBlog.com
January 16, 2013

Hotel Lawyer with lender problems on a problem golf course.

A recent court decision points to a critical difference between the way revenue generated by golf courses and revenue generated by hotels is viewed in a bankruptcy scenario. My partner, Ben Young, reports how one lender found out that the cash flow generated from the green fees of a bankrupt golf course was not part of the lender's collateral.

Veteran workout specialists will be reminded of the old "rents versus accounts" issue on hotel revenues that was finally resolved by an amendment to the Bankruptcy Code.

Double Bogie: Bank's Security Interest in Green Fees
Cut Off by Club's Bankruptcy

by
Bennett G. Young | Hotel Lawyer

Are golf course revenues "rents"?

A golf course may look like a solid piece of collateral. After all, golfers will pay good money to play and the green fees and driving range fees golfers pay to play the course will generate a revenue stream. This revenue stream can be pledged to a lender and used to support loans to the owner of the course. Lenders love to finance a business that generates a steady revenue stream, making a golf course look like an attractive form of collateral.

But what happens if the owner of the course files a bankruptcy case? In that event, the lender will want to control the borrower's cash flow. Does the lender's lien extend to the green fees and driving range fees paid by golfers after the course's owner files a bankruptcy case?

Premier Golf Properties -- new appellate panel decision on security interest in golf course revenues

A recent decision of the Bankruptcy Appellate Panel for the Ninth Circuit holds that the lender's lien does not encumber post-petition green fees and driving range fees. The result of the case (Premier Golf Properties LP) is that the lender immediately lost its security interest in the most important revenue stream generated by its borrower.

In Premier Golf, the debtor owned two 18-hole golf courses and a driving range and its revenues were generated by the green fees and driving range fees. The lender made a loan to the debtor secured by a blanket security interest in all of the debtor's real property and personal property. The lender's loan documents granted it a security interest in all accounts and contract rights. The loan documents specifically included in the lender's collateral all green fees and driving range fees and all rents, issues, revenues and profits arising from any rental, license, concession or other grant of a right of possession, use or occupancy of the real property or from any agreement affecting the use, enjoyment or occupancy of the real property.

Bankruptcy cuts off security interest in post-petition revenues from the golf course

The debtor filed a chapter 11 case and immediately argued that the lender's security interest did not extend to any post-petition green fees and driving range fees. Under Bankruptcy Code § 552, whether the post-petition green fees and driving range fees were subject to the lender's pre-petition security interest turned upon whether these fees were the proceeds of the lender's collateral or were rents for the collateral. The debtor argued that the post-petition green fees and driving range fees were not proceeds of the lender's collateral, were not rents for the use of the lender's collateral and therefore were no longer the lender's collateral.

The Bankruptcy Appellate Panel agreed. The court determined that the green fees and driving range fees were not rents because those fees derived primarily from the services performed by the golf course owner, not from the real property. These services included repositioning holes, planting, seeding, mowing, watering, fertilizing and maintaining the course. The court concluded that "Unlike hotel cases where the revenue from room rental derives primarily from the usage of real property as shelter or occupancy, a golf course derives its revenue primarily from the usage of real property as entertainment." Similarly, because the fees were generated by the services performed by the course's owner, the fees were not proceeds of the lender's collateral.

What does this all mean?

The Bankruptcy Appellate Panel's decision appears to be correct. In legal terms, rent is an amount paid for the possession and occupancy of real property. A golfer is not in possession of the course and the fees paid to play the course therefore can in no way be considered "rent". Similarly, the fee is primarily for the services provided by the course and thus is not "proceeds" of the lender's collateral either.

The obvious consequence is that a lender cannot rely on holding a security interest in green fees and driving range fees to protect it in a bankruptcy case. Because these fees are a primary source of a golf course's revenues and cash flow, a lender's inability to obtain a bankruptcy-proof security interest will make it much more difficult for course owners to obtain financing.

The decision may have broader implications as well. Premier Golf held that cash collected on the lender's collateral was not subject to the lender's security interest because that cash was generated from the debtor's performance of services and was not merely the passive conversion of the lender's collateral into cash. As a result, a lender to any business that incorporates a strong services component in its revenue generation will want to consider the potential impact of Bankruptcy Code section 552 in the event of the borrower's bankruptcy filing.

For more information on workouts, bankruptcies and receiverships of hospitailty properties


For more articles about dealing with distressed hospitality assets, go to www.HotelLawyer.com and scroll down the right hand side. Then click on red link to the topic that says, "Workouts, Bankruptcies & Receiverships."

There is a rich library of materials there, including free access to The Lenders Handbook for Troubled Hotels.

JMBM's Global Hospitality Group® has deep experience in all aspects of golf course, resort and hospitality finance -- as well as in workouts, bankruptcy and receiverships. We would be pleased to discuss the implications of this case with you and help you to evaluate your options for protecting your interests.

Bennett Young is a partner in JMBM's Bankruptcy, Insolvency and Restructurings Group and a senior member of the Global Hospitality Group®. His clients include lenders, financial institutions, secured and unsecured creditors, distressed investment funds, businesses, receivers, special servicers and creditors' committees. Ben recently represented the owner of a partially completed multi-billion dollar resort property in the restructuring of its finances and has represented lenders to hotels and casinos. For more information, contact Ben Young at 415.984.9626 or [email protected].
__________________________

This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer?
__________________________
Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties all over the world. For more information, please contact Jim Butler at [email protected] or +1 (310) 201-3526.
 
Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why.

Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.


 

Contact:

Jim Butler
[email protected]
310.201.3526


.
Receive Your Hospitality Industry Headlines via Email for Free! Subscribe Here

To Learn More About Your News Being Published on Hotel-Online Inquire Here
.
Also See: ADA Defense Lawyer: Pool lift deadline of January 31, 2013 looms, but may be a diversion from enterprise-wide ADA compliance / Jim Butler / January 2013

Can I Use the EB-5 Visa Program for Financing Hotel Acquisition and Renovation? / Jim Butler / January 2013

Due Diligence Tips for Your Next Hotel Acquisition / Jim Butler / January 2013

Hotel Lawyer Privacy Alert: Do your hotel mobile apps comply with new interpretations of online privacy rules? / Jim Butler / January 2013

Hotel-Retail Mixed-Use: Hospitality Industry Trend for 2013 / Jim Butler / December 2012

Buying a Hotel? Financing a Hotel? 10 Things Every Borrower Should Know. (Part 2) / Jim Butler / December 2012

Buying a Hotel? Financing a Hotel? 10 Things Every Borrower Should Know. (Part 1) / Jim Butler / December 2012

Hotel Lawyer with the New Guide for International Hotel Transactions -- Doing Business Abroad or With Foreigners / Jim Butler and Bob Braun / November 2012

The Hotel Purchase and Sale Agreement -- What is the Value of the Seller's Representations and Warranties to a Hotel Buyer? / Jim Butler & David Sudeck / November 2012

Seller Representations and Warranties in a Hotel Purchase Agreement -- What are the big issues today? / Jim Butler & David Sudeck / November 2012

Hotel Lawyer Alert: U.S. Hotel Owners could lose $2.1 billion in hotel value with new Expedia program / Jim Butler / November 2012

David Loeb Shares the Robert W. Baird Industry Analysis on C-Corps and REIT's / Jim Butler / October 2012

Hotel Lawyer with PKF's 'U.S. Lodging Market Outlook' - What if we hit the Fiscal Cliff? What if we postpone it? Recession in 2013? / Jim Butler / October 2012

How to Buy a Hotel - What you don't know about undocumented workers could really hurt you! / Jim Butler & Guy Maisnik / October 2012

3 Nuggets of Information from Vail Brown of STR on Hotel Industry Prospects for 2013 and Beyond / Jim Butler / October 2012

JMBM's Hotel Lawyers Post 500th Blog; HotelLawyer.com and Hotel Law Blog are resources for hotel owners and lenders / Jim Butler / October 2012

Phoenix Rising - Insights from the Phoenix Lodging Conference / Jim Butler / October 2012

Hotel Liability for Guest Information - What you need to know and how to avoid liability. / Jim Butler & Robert Braun / October 2012

JMBM's Global Hospitality Group® releases 2nd Edition of The HMA Handbook, Hotel Management Agreements for hotel owners, developers, investors and lenders / Jim Butler / September 2012

Finally, Some GOOD NEWS from Washington, DC / Jim Butler, Catherine Holmes and Victor T. Shum / September 2012

EB-5 Financing for Hotels is Now Mainstream Institutional / Jim Butler / September 2012

JMBM's Chinese Investment Group Happenings and Events / Jim Butler / August 2012

Dodd-Frank Act Presents Hotels with Decisions on Credit and Debit Card Charges / Jim Butler & Robert Braun / August 2012

Hotel Restructuring, Workouts, Receiverships and Bankruptcy. The Art of Heavy Lifting. / Jim Butler / August 2012

How to Buy a Hotel Handbook: Franchise issues in hotel purchase and sale transactions / Jim Butler / August 2012

Hotel Lawyer: Experts Share Top 5 Tips on Picking the Right Hotel Operator and Brand for Your Hotel / Jim Butler & Robert Braun / July 2012

Losing the Expectation of Privacy bit by bit, byte by byte / Jim Butler and Mark Adams / July 2012

How to Buy a Hotel Handbook: Labor and Employment Tips; Buying a hotel - the Hotel Purchase Agreement documentation and process / Jim Butler, Catherine DeBono Holmes and Marta M. Fernandez / July 2012

How to Terminate a Hotel Management Agreement: A Tale of Two Hotels - Marriott's Edition Waikiki and Fairmont's Turnberry Isle Resort; Two owners terminate long-term hotel management agreements, seize control of their hotels from branded operators, and then settle their litigation / July 2012

EB-5 Lawyer Alert #3: Update on California TEA designation procedure. What's the problem in California! / Jim Butler, Catherine DeBono Holmes and Victor T. Shum / June 2012

How to Finance Hotel Development in 2012....Alternate financing for new hotel construction in a brave new world / Jim Butler / June 2012

'Cyber Accessibility' is the New Frontier for ADA Lawsuits. Your Next DOJ Investigation or ADA Class Action Could be Just a Mouse Click Away! / Jim Butler / June 2012

ADA Compliance and Defense Lawyer: ADA Experts Discuss Hottest Issues Facing the Hotel Industry Today / Jim Butler / May 2012

HotelLawyer.com Launches; Portal to Knowledge for the Hospitality Industry; JMBM's Global Hospitality Group® of Hotel Lawyers Provide Comprehensive Hospitality Resource / May 2012

Update on California's EB-5 Policy Regarding Designation of Targeted Employment Areas or TEAs / Jim Butler / May 2012

Successful Joint Ventures for Hotel Development, Acquisition and Financing / Jim Butler / May 2012

Hotel Lawyer: Clarification on the DOJ's Amendment to the Pool Lift Extension / Jim Butler / May 2012

Hotel Lawyer from Meet the Money® - Lodging Industry Investment Council (LIIC) Announces its Top 10 Challenges for Hotel Industry in 2012 / Jim Butler / May 2012

Meet the Money® Conference Talks about Hotel Loans and Equity Investment, Creating Value with Hotel Value-add and Repositioning, Hotel Opportunistic Investment, Deal Making and Much More / Jim Butler / May 2012

ADA Compliance and Defense Lawyer Alert: Charles Schwab settles claim over website accessibility / Jim Butler / May 2012

EB-5 ALERT: California's New TEA Approach will Discourage EB-5 Investment in California / Jim Butler / May 2012

JMBM is One of 20 Hottest Law Firms in the U.S. Per the National Law Journal's Latest List / April 2012

Hotel Labor Lawyer: California Supreme Court Finally Gives Employers Some Good News in Brinker Restaurant Corporation v. Superior Court / Jim Butler & Travis Gemoets / April 2012

How to Negotiate a Hotel Management Agreement. 10 Tips for a Smoother Process / Jim Butler / March 2012

ADA Defense Lawyer: What does the ADA pool lift compliance extension mean to you? / Jim Butler / March 2012

DOJ Turnabout: Pool lift compliance deadline extended to May 15 / Jim Butler / March 2012

5 Things to Remember when Buying Hotel Notes / Jim Butler / March 2012

ADA Defense and Compliance Lawyer: More clarification or confusion on March 15 ADA standards? / Jim Butler / March 2012

ADA ALERT - A Call to Action Before the March 15, 2012 ADA Deadline / Jim Butler / February 2012

GlobeSt.com Interviews JMBM's ADA Defense and Compliance Lawyers: Hotels Handle Pool Lift Regulations / Jim Butler / February 2012

FBI Tips for Hotels; How to spot terrorists and what to do. / Jim Butler / February 2012

ADA Defense and Compliance Lawyer Advisory: DOJ Clarifies March 15, 2012 Mandatory Pool Lift Requirement! (Uh-oh!) / Jim Butler & Martin Orlick / February 2012

Quick! Can You Pass This 3-Question ADA Pop Quiz? / Jim Butler / January 2012

Hotel Lawyer in Los Angeles: ALIS - What's the commotion all about? Closing the conference hotel to outsiders. / Jim Butler / January 2012

Hotel Management Contract Disputes: Importance of 'Fiduciary' Duties in Owner-Operator Lawsuits / Jim Butler / January 2012

Litigation and Disputes Between Hotel Owners and Operators are on the Rise? Why? / Jim Butler / January 2012

ADA Defense Lawyer: New ADA Regulations Kick in Soon. Say goodbye to 'grandfathering' under the ADA / Jim Butler / November 2011

Hotel Lawyer in Washington D.C. - Why the Lodging Industry Will Continue to Do Well Despite Bumpy Markets and More / Jim Butler / November 2011

Chinese Investment in U.S. Hotels: What the Real Estate Professionals Want to Know / Jim Butler / October 2011

Hotel Lawyer in Dallas Listening to the Special Servicers / Jim Butler / October 2011

Hotel Lawyer with Optimism for the Hotel Industry from the Dallas Lenders Conference, Fishing for Solutions 2011 / Jim Butler / October 2011

Updating Service Animal Policies of Your Hotel or Other 'Place of Lodging' / Jim Butler, Martin Orlick and David Sudeck / October 2011

Hotel Industry Alert: Some things to feel (very) good about! / Jim Butler / September 2011

Hotel Lawyers in Phoenix: It's not just me. The market has changed in just the last 60 days! / Jim Butler / September 2011

Hotel Labor and Employment Lawyer Update: Controversial Union Rights Notice Subject to Legal Challenge - Employers Should Not Rush To Post It / Jim Butler & Scott Brink / September 2011

Hotel Franchise Lawyer: Hotel Franchise Agreements and the 5 Biggest Mistakes a Hotel Owner Can Make / Jim Butler & Robert Braun / September 2011

Hotel Labor and Employment Lawyer Alert: The NLRB is making it harder to stay union free / Jim Butler & Scott Brink / September 2011

Tips from Hotel Franchise and Management Lawyers: Beware the Trap of Changing Brand Standards / Jim Butler & Robert Braun / September 2011

Labor and Employment Alert: New Law Requires Employers to Post Employee Rights Notice by November 14, 2011; NLRB Publishes Final Rule for Notification of Employee Rights / Scott Brink , JMBM / September 2011

Hotel Lending Lawyer: What every hotel lender needs to know about hotel due diligence / Jim Butler & Guy Maisnik / September 2011

Hotel Lending Lawyer: What every hotel lender needs to know about Cash Controls / Jim Butler & Guy Maisnik / August 2011

Hotel Lawyers on Terminating Hotel Operators: M Edition Lawsuit Against Marriott Has a New Twist Marriott is Replaced Overnight / Jim Butler / August 2011

Hotel Lawyers on Terminating Hotel Operators: Turnberry Resort Drops Fairmont Flag / Jim Butler / August 2011

Hotel Lending Lawyer: What every hotel lender needs to know about SNDA's / Jim Butler & Guy Maisnik / August 2011

Hotel Lending Lawyer: What every hotel lender needs to know about HMAs and hotel franchise agreements / Jim Butler & Guy Maisnik / August 2011

Hotel Lawyer on the Importance of Brands - Intellectual Property Rights and What They Mean: Family Suites Resorts v. Viacom International d/b/a MTV Networks - a Suit Over Branding / Jim Butler / August 2011

Hotel Lawyer on the Fiduciary, Contractual and Agency Duties of Hotel Brokers - Host Hotels & Resorts LP v. Molinaro Koger Litigation / Jim Butler / August 2011

M Waikiki's Edition Lawsuit Against Marriott International and Ian Schrager - an Owner's HMA Dispute with Marriott and What it All Means / Jim Butler / August 2011

Hotel Investment: Why Asian investors are targeting U.S. hotels for purchase and investment, and what could it mean for you? / Jim Butler / August 2011

Hotel Developers: Why a "regional center" may be the key to financing your next hotel development or expansion. And what you need to know... / Jim Butler / July 2011

How to use the EB-5 Immigrant Investor Visa Program for financing / Jim Butler / July 2011

JMBM Announces Formation of the Chinese Investment Group™ - Hotels, Real Estate, EB-5 Immigrant Investor Visas / July 2011

Hotel Lawyer: How do you know when you should set up a captive insurance company for your hotel? Take our "litmus test". / Jim Butler & Gordon Schaller / July 2011

Hotel Lawyer: What you need to know about the "ancillary benefits" of setting up a captive insurance company / Jim Butler & Gordon Schaller / June 2011

Hotel Lawyer: Are you thinking about setting up a captive insurance company? Maybe you should be. . . / Jim Butler & Gordon Schaller / June 2011

Hotel Lawyer in New York with pre-NYU industry forecast: Sunny with occasional clouds and NO storms on the horizon / Jim Butler / June 2011

Hotel Lawyer with the Executive Roundtable Results; Debt is returning, equity is out looking, and we've passed the bottom of the trough. Why now is the time to purchase a hotel. / Jim Butler / June 2011

ADA Defense Lawyer: How to Quickly Lose Business. (No ADA-Compliant Reservation System) / Jim Butler & David Sudeck / May 2011

Hotel Lawyer with Fresh Perspectives on the Hotel Industry from Smith Travel / Jim Butler / May 2011

Hospitality Lawyers with PKF and Mark Woodworth's Lodging Overview / Jim Butler / May 2011

Hotel Lawyers' Updates on Capital and Debt Markets for Hotels, Transaction Sales Data and Financings / Jim Butler / May 2011

Hotel Lawyer with Updates on Hotel Cap Rates, Values and Transactions / Jim Butler / May 2011

Hotel Lawyer with nuggets from JMBM's Meet the Money® 2011 / Jim Butler / May 2011

Hotel Lawyer: The hotel transaction market is heating up! / Jim Butler / April 2011

Hotel Lawyer with good news! A new federal court decision upholds condo hotel structure. No "securities" involved as structured. Disgruntled condo hotel unit purchaser lawsuit dismissed. / Jim Butler / April 2011

Meet the Money®: Hotel Financing Renaissance is Underway! / Jim Butler / April 2011

JMBM’s Global Hospitality Group® announces publication of The HMA Handbook, a FREE practical guide for negotiating Hotel Management Agreements for Hotel Owners, Developers, Investors and Lenders / March 2011

Buying a Hotel? Don't Buy an ADA Lawsuit or DOJ Investigation / Jim Butler / March 2011

Hotel Lawyer on Hotel Management Agreements: Exculpation Clauses for Protecting the Owner's Assets / Jim Butler / February 2011

ADA Defense Lawyer: How to handle an ADA lawsuit....and How not to do it / Jim Butler / February 2011

Hotel Lawyer: 5 Key Elements for Good Hotel Management Agreement Budget Provisions / Jim Butler / February 2011

How improving fundamentals make 2011 the year of "Great Expectations" for the Hotel Industry / Jim Butler / February 2011

Ask the Hotel Lawyer: 2011 is starting as the year of "Great Expectations" for the hotel industry! / Jim Butler / January 2011

Hotel ADA Defense Lawyer: How a recent ADA case affects all hotels but particularly conference centers and meeting hotels / Jim Butler / January 2011

Hotel Lawyer: So, You Think You Want to Buy a Hotel? For savvy investors, the time could be right / Jim Butler / January 2011

Sheraton Universal Hotel Sale Facilitated by JMBM's Global Hospitality Group® / Jim Butler / January 2011

.


To search Hotel Online data base of News and Trends Go to Hotel.OnlineSearch

Home | Welcome | Hospitality News
| Industry Resources

Please contact Hotel.Online with your comments and suggestions.