Bailout Plan Could Help Industry

Phil Gordon has simple advice for hotel owners looking to refinance today: "Go take a long nap." The head of the hotel and leisure practice group at law firm Perkins Coie says money is not currently available, but the government bailout plan offers some hope that could change.

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So if you are taking after Rip Van Winkle, you may just want to hit the snooze button. Gordon, who helps owners buy, sell and refinance predominantly higher-end hotels, believes there could be light at the end of the tunnel. The proposed $700 billion package is currently being debated in Washington. Congress was expected to vote on the proposal later this week, although details and the price of the plan are still being hotly contested.

After months of cautious optimism, the mood around the industry has turned into more realistic pessimism. Hoteliers and industry leaders are bracing for an extended downturn. Nowhere is that more evident than on the development and transaction side of the business, which has grinded to a halt in recent months.

The bailout plan would give the Treasury Department, or some government-created facility, the power to buy up bad assets from financial firms — mostly mortgages — and even commercial mortgage-backed security loans made on hotels. The end result, Gordon believes, is credit markets would loosen, making financing more available. He says it would take at least three to six months for that to happen as the details of the plan are ironed out and understood. Failing residential mortgage loans would likely be targeted first, but hotel owners who don't have debt due immediately stand to eventually benefit.

"The likelihood of surviving is much better" with the bailout, Gordon says. "The difference the bailout makes is for owners who are not too overleveraged because there will be a dramatic increase in the ability to refinance the debt when it comes due."

Those who can refinance will be in great position when the market corrects, he says. "People with existing properties will be particularly advantaged as we emerge from this recession. These properties will be sky-high in value since the amount of supply will be extremely contracted."


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