S&L; Crisis and Hotel Glut Mean Business for Firm : Management: A firm that specializes in helping troubled hotels on behalf of banks and thrifts has had a big increase in business.
Just a couple of years ago, Bill Hoffman says he made a living running successful hotels for investors who cared more about making money than fluffing pillows.
But these days, Hoffman, president of Trigild Corp., a San Diego-based hotel management and consulting firm, says he feels more like an “emergency room doctor” trying to keep afloat troubled hotels suffering from empty rooms--casualties of over building and over financing that have occurred in the industry in recent years.
Lending institutions that made too many loans to marginally qualified investors have helped create a surplus of hotel rooms nationwide, industry experts say. The repercussions of such poor lending decisions and overbuilding are now being felt: an increasing number of hotels, plagued by high vacancy rates, are facing foreclosure.
The misfortune of such hotels, however, has led to a boom in business for Trigild and other hotel management and consulting firms. In a typical case, a lending institution will contract Trigild to keep a struggling hotel operating until new investors can be found for the property.
For years, the bulk of Trigild and other consulting firms’ work consisted of running hotels for their owners. But these days, lending institutions are often hotel management firms’ most prominent clients.
“Prior to 1988, financial institutions or troubled properties accounted for less than 10% of our business,” Hoffman said. “Now 80% to 90% of the properties that we deal with have financial troubles, have been foreclosed, or are in the midst of a foreclosure action.”
Gregory Peerbolte, a CPA and principal with Laventhol & Horwath, says he expects the pace of hotel downfalls to hasten in coming years.
“There’s been an awful lot of problem properties lately,” Peerbolte said. “Business for (hotel management firms) started heating up three years ago and this last year it’s really picked up for them, but they still haven’t hit a peak.”
Although overbuilding has aggravated the industry’s woes, Peerbolte said, the current savings and loan crisis has caused as much or even greater problems.
“There are too many hotel rooms nationwide, but it’s not a drastic situation at this point,” Peerbolte said. “There are pockets of overbuilding in certain metropolitan areas, but I wouldn’t be able to say that a certain city is completely overbuilt.
“Overbuilding alone isn’t what’s causing the problem,” Peerbolte said. “During the last five years there have been poor underwriting and poor lending decisions made by the S&Ls.; There was a lot of competition among the S&Ls.; They were all trying to grow quickly and took lots of risks without understanding the market.”
Peerbolte said marginally qualified investors lacked the capital to get a hotel up and running.
“Most hotels shoot for 70% to 75% occupancy and that often takes three years,” Peerbolte said. “You don’t open the doors and instantly get a full house. You need cash to pay the debt while the property is trying to reach stabilization. These guys didn’t have it.”
Two years ago Hoffman said he recognized this emerging group of ailing hotels as a potentially lucrative niche market in the hotel management field.
“We saw five times the number of companies seeking to run hotels for investors,” Hoffman said. “There was a lot of price cutting. We were successful in that field, but we could clearly see the profit margin shrinking for everybody.”
So Trigild began marketing its services to lending institutions. That decision appears to be paying off: Trigild, a closely-held company, posted nearly $1 million in revenues in 1989, up 15% over 1988. But this year, Hoffman said he expects revenues to double. Hoffman declined to release earnings but said the company is profitable.
Trigild, which leases a 2,000-square-foot office in San Diego, has a staff of six hotel administrators who are dispatched to ailing hotels to take over marketing, accounting and operational duties.
These trouble-shooters, however, stay at a particular site only long enough to assess the hotel’s problems and then they move on. Often, they’ll hire new personnel to carry out their plans. Trigild typically has 50 to 100 hotel employees on its payroll.
Trigild is currently managing nine properties, ranging in size from 25 units to 200 units, in California (8) and Arizona (1). The company receives a percentage of the hotel’s sales for its managing services.
Trigild begins its work at a troubled facility by establishing a priority list, said Hoffman, who is also president of the California Lodging Industry Assn., a 1,000-member trade group consisting of the state’s hotel owners and operators.
“Why do we have two desk clerks when there is only a need for one? Can we move one of them to help out in marketing? Evaluating personnel and making sure the most critical needs are being addressed first are our priorities,” Hoffman said.
Often, a hotel’s long-term advertising campaign may be abandoned in favor of marketing strategies that produce immediate results.
“What we want to know is, how can we sell rooms this weekend,” Hoffman said. “There’s a certain amount of gonzo marketing involved.
“If we’re dealing with a 100-room hotel and we’re only filling 40 rooms, we might close down an entire wing,” Hoffman said. “This way, we can save money by not running air conditioning in the closed wing.
But sometimes, Hoffman said, one must spend money to make money.
“At one hotel the previous manager got rid of the entertainment at the hotel bar when he started running out of money,” he said. “We started it up again, cautiously, just on weekends, and that boosted the bar sales.
Hoffman concedes that such short term planning may not be the best way to improve a hotel in the long run, but says that’s not important.
“You have to keep in mind who our client is--the lending institution,” Hoffman said. “Sometimes they might direct us to spend some money and turn around a facility. But more often than not the bank’s hoping to sell it tomorrow.
Last August, a San Diego savings and loan foreclosed on an 80-unit hotel in Palm Springs and hired Trigild to run the facility.
“I ate dinner at the hotel restaurant and afterward had a chocolate cake,” Hoffman said. “It tasted fishy.” Upon inspection, Hoffman discovered that the hotel had been storing its chocolate cakes and its fish in the same refrigerator at an inappropriate temperature. The kitchen meat was also stored improperly. Trigild changed how the hotel receives, stores and handles its food supplies.
“We didn’t want them to rehab the hotel, but we did want them to do the things necessary to run it as a safe and secure hotel,” said a spokeswoman for the San Diego bank. “Trigild kept the property attractive and they definitely proved to be an asset in the sale.” The bank just sold the property last week.
Jo Ann Kruse, vice president loan administration at Mission Viejo National Bank, turned to Trigild when the bank foreclosed on a 22-unit motel in Borrego Springs. Trigild has handled the motel’s day-to-day operations and personnel issues, including hiring a new general manger for the facility.
“A bank is not in the business of running hotels,” Kruse said. “Trigild has taken care of all the big and little things a manager would do. They’ve also helped us market the product. When there’s somebody who’s interested in purchasing the hotel we refer them to Trigild. They can talk about the hotel’s occupancy rate and provide potential purchasers with pertinent financial information.”
Although fluent in hotel jargon these days, Hoffman says success in the hotel industry was pure accident.
In 1971, Hoffman left Chicago and his “marginally profitable” wholesale graphic arts supply business and moved to San Diego. “I wanted to get away from the cold weather,” Hoffman says.
Upon arrival in San Diego, Hoffman decided to pursue a career in law and enrolled in Western State University.
“That’s when I met some people who were developing hotels,” Hoffman said. “They had opened a Best Western in Del Mar and they asked me to fill in for the general manager who was ill. I knew absolutely nothing about the hotel business, but I doubled the net profit of the hotel in the first year that I managed it.”
Although Hoffman continued with his law studies, earned his law degree in 1974 and is now an active member of the bar, success in the hotel industry spurred him to launch Trigild.
When today’s surplus hotel rooms are eventually absorbed in the marketplace, Hoffman says he expects his client base to shift back from lending institutions to investors.
Working for both clients suits Hoffman just fine.
“Sometimes it’s frustrating that you can’t make everything a big success, but patching up a troubled hotel is satisfying in its own right,” said Hoffman, referring to the short time he manages a property before a lending institution finds new owners. “I’ve got a couple of friends who are doctors, plastic surgeons. They help people look prettier and I’m sure that’s satisfying.
“But I’ll bet those doctors who are in the emergency rooms, stopping the bleeding, find their jobs satisfying, too,” Hoffman said. “We’re emergency room doctors for hotels.”
