News for the Hospitality Executive
Hotel Lending Lawyer:
By Jim Butler & Guy Maisnik of the Global Hospitality Group®,
Author of www.HotelLawBlog.com
August 26, 2011
Lenders: What should every hotel lender consider in the SNDA before
hotel loan? Here's what to look for.
If you would like a refresher as to why hotel lending is different from other kinds of real estate lending, you may want to refer to (see, Why hotel lending is different and 8 pitfalls of hotel lending and how to avoid them).
see the links at the end of this article for other articles in the
every hotel lender needs to know" series.
(Subordination, Non-Disturbance and Attornment Agreements)
Guy Maisnik |
Hotel Lending Lawyer, JMBM Global
In other words, despite the opening paragraphs that provide the lender's lien is senior to the management agreement, foreclosure will not cut off the hotel management agreement as it does with most junior encumbrances. Unfortunately, this lender will soon be writing a large check to the hotel's operator, and the hotel's value is severely reduced. In fact, in this case, it appears that the property would sell for double its likely sale price if it were "unencumbered" by the long-term management agreement.
This was not the first time, nor will it be the last, an unwitting real estate lender mistakenly treated a hotel loan like a real estate loan. This particular lender has a long history of real estate lending, and has even made some high-end hotels loans. But it is clear that the lender and its legal counsel are not sufficiently knowledgeable about hotel lending. They do not understand how the SNDA and hotel management agreement work together, nor do they really understand how the hotel operates. In this case, what they didn't know cost them a bundle.
hotel lenders can avoid such expensive blunders.
the SNDA does
When a hotel lender grants "non-disturbance" rights to a hotel operator, the lender is agreeing that if the lender ever seeks a receiver or acquires control over or title to the property by foreclosure, deed-in-lieu of foreclosure or otherwise, it will recognize and accept in its entirety the hotel management agreement in the same manner as if it were the hotel owner. Often, the hotel lender feels compelled to accept the SNDA and to grant non-disturbance to a hotel operator -- otherwise the hotel owner will seek financing from another lender. Therein, the foible lies. Once the hotel lender agrees to be bound by and to honor the hotel management agreement (including the SNDA), many terms of the loan documents are modified to the severe detriment of the hotel lender.
If a hotel lender is forced to recognize the hotel management agreement post foreclosure, the rights and remedies of the lender and hotel operator become quite complex. The hotel lender that ignores the complex elements of the hotel management agreement up front may find a rude awakening when it comes into title.
lending lawyer series - What every hotel lender needs to know
are a lot of hotel-specific issues that hotel loan documents have to
This series is designed to provide the essentials:
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.
JMBM’s Global Hospitality Group®
The hotel lawyers in the Global Hospitality Group® of Jeffer Mangels Butler & Mitchell (JMBM) comprise the premier hospitality practice in a full-service law firm and are the authors of the Hotel Law Blog. We represent hotel owners, developers, investors and lenders and have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties worldwide. For more information about the Global Hospitality Group®, go to www.HotelLawBlog.com. For more information about full range of legal services provided by JMBM, go to www.JMBM.com.
Lending Lawyer: What every hotel lender needs to know about HMAs and
hotel franchise agreements / Jim Butler & Guy Maisnik / August
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
Lawyer on the Fiduciary, Contractual and Agency Duties of Hotel Brokers
- Host Hotels & Resorts LP v. Molinaro Koger Litigation / Jim
Butler / August 2011
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
Investment: Why Asian investors are targeting U.S. hotels for purchase
and investment, and what could it mean for you? / Jim Butler /
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
to use the EB-5 Immigrant Investor Visa Program for financing / Jim
Butler / July 2011
Announces Formation of the Chinese Investment Group™ - Hotels, Real
Estate, EB-5 Immigrant Investor Visas / July 2011
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
Lawyer: What you need to know about the "ancillary benefits" of setting
up a captive insurance company / Jim Butler & Gordon Schaller /
Lawyer: Are you thinking about setting up a captive insurance company?
Maybe you should be. . . / Jim Butler & Gordon Schaller / June
Lawyer in New York with pre-NYU industry forecast: Sunny with
occasional clouds and NO storms on the horizon / Jim Butler / June
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
Defense Lawyer: How to Quickly Lose Business. (No ADA-Compliant
Reservation System) / Jim Butler & David Sudeck / May 2011
Lawyer with Fresh Perspectives on the Hotel Industry from Smith Travel
/ Jim Butler / May 2011
Lawyers with PKF and Mark Woodworth's Lodging Overview / Jim Butler
/ May 2011
Lawyers' Updates on Capital and Debt Markets for Hotels, Transaction
Sales Data and Financings / Jim Butler / May 2011
Lawyer with Updates on Hotel Cap Rates, Values and Transactions /
Jim Butler / May 2011
Lawyer with nuggets from JMBM's Meet the Money® 2011 / Jim
Butler / May 2011
Lawyer: The hotel transaction market is heating up! / Jim Butler /
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
the Money®: Hotel Financing Renaissance is Underway! / Jim
Butler / April 2011
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 /
a Hotel? Don't Buy an ADA Lawsuit or DOJ Investigation / Jim Butler
/ March 2011
Lawyer on Hotel Management Agreements: Exculpation Clauses for
Protecting the Owner's Assets / Jim Butler / February 2011
Defense Lawyer: How to handle an ADA lawsuit....and How not to do it
/ Jim Butler / February 2011
Lawyer: 5 Key Elements for Good Hotel Management Agreement Budget
Provisions / Jim Butler / February 2011
improving fundamentals make 2011 the year of "Great Expectations" for
the Hotel Industry / Jim Butler / February 2011
the Hotel Lawyer: 2011 is starting as the year of "Great Expectations"
for the hotel industry! / Jim Butler / January 2011
ADA Defense Lawyer: How a recent ADA case affects all hotels but
particularly conference centers and meeting hotels / Jim Butler /
Lawyer: So, You Think You Want to Buy a Hotel? For savvy investors, the
time could be right / Jim Butler / January 2011
Universal Hotel Sale Facilitated by JMBM's Global Hospitality Group®
/ Jim Butler / January 2011