Media Coverage
Source: Law 360
Media Coverage
Press Contacts: Erik Cummins, Matt Hyams, Olivia Thomas
07.17.23
In its midyear 2023 outlook on the hospitality industry, Law360 tapped New York Insolvency & Restructuring partner Patrick Fitzmaurice to discuss the trends to watch in this sector amid rising interest rates, inflation, owner-management disputes, buyouts, bankruptcies and labor issues.
Specifically, Fitzmaurice noted that increased financial distress may be on the horizon for some sectors of the industry due to rising costs, higher interest rates and labor issues.
“Some brands are seeing decreased demand in general and are trying to stand out from the pack,” Fitzmaurice told Law360. “Maybe one way to stand out is to improve the perception of the product and make things ‘nicer,’ and that’s going to cost money. Who’s going to pay for that? The brand or the operator?”
And, if interest rates continue to rise, the potential for decreased revenue associated with a potential pullback in leisure travel may only make things worse.
“The consumer now has less money to spend because everything costs the consumer more,” he said. “We had pent-up demand for two and a half years during the pandemic, but if interest rates continue to increase, perhaps there will be a consumer spending pullback.”
With costs increasing and revenue declining, restructuring seems more likely, but may be challenging.
“What can the property bear? Bankruptcy is always an option,” Fitzmaurice said. “But what happens if you're a hotel sponsor who has given a recourse carve-out guaranty, which means you are personally responsible for the full amount of the loan if the company files for bankruptcy? It may be the case that you think asset value is such that there's not going to be a loss, because the lender will get the full amount of the debt paid from the property. But what if you're wrong?”