NEW YORK—Like many multiproperty hotel owners, Lance Shaner is trying to put things back together following the economic downturn of the ages.
Shaner, president and CEO of State College, Pennsylvania-based Shaner Hotel Group, is working on adding to the company’s portfolio, restoring dropped benefits to employees and turning his hotels back into profit centers. And he knows he’s not alone.
“We have suffered tremendously, but the reality is most owners have worked through it with their banks,” he said in an interview conducted earlier this month during the New York University International Hospitality Industry Investment Conference. “(Commercial mortgage-backed securities are) more problematic because with the special servicer obligations and fiduciary responsibilities, there’s less flexibility than you would find in the commercial banking sector. The industry has kept it together.”
Shaner pointed to shrinking supply growth and growing gross national product as signs that good times might lie ahead. “As we lift out of this—and assuming we can get some pro-growth policies on a national level, which I’m concerned about—I think we’re going to see a good run in the hotel industry in profitability.”
SHG has 30 hotels in its portfolio, including 27 that it owns and manages. The company was founded in 1983 and has about 2,500 employees. It has a partnership with Five Arrows, formally known as Rothschild Investment Fund.
Looking for growth
Shaner said the company and Five Arrows are in discussions to complete a US$500-million deal, possibly before the end of the year.
“That’s the good news, to come out of the dark clouds and move into the sun,” he said.
The deal could add up to 50 hotels to the Shaner portfolio. It would put the group’s stable at between US$600 million and US$900 million in hotel assets.
“We are looking to acquire in the select-service area,” Shaner said. “We like to manage our hotels and think we do a very good job. Depending on how we proceed with the acquisition, be it private we would manage, but if we do it in a public venue, under the (real estate investment trust) requirements, you have to have an independent management company. We would enact that with a host of management companies. We can do it either way, but we’re going to see when we finalize the negotiations what is the best capital source.”
The company also announced that its Shaner Mortgage Real Estate Investment Trust, funded by Shaner and Five Arrows Realty Securities V, L.P., has acquired US$90 million face amount of performing first-mortgage debt under its previously announced plan to acquire approximately US$200 million of debt.
“We are not a loan-to-own fund,” he said. “We are actually interested in working with borrowers when we acquire their debt. We have been flexible. We’ve given forbearance on principal payments. We’ve helped out on escrow requirements in the original loan documents to give some additional cash flow to our borrowers. We’ve been very clear and said: ‘We want you to be successful. We want to work with you so you can stay current on your obligations. And for us, at the end of the day—in three to
The company has been lending for a number of years, and clients on the docket run the gamut—from a major golf resort to a large Las Vegas hotel to select-service properties.
“We’re looking to acquire debt of reputable companies, who are straight shooters, good management and have a good affiliation on the franchise side,” Shaner said.
Drastic measures
The economy of the past 24 months forced SHG to cut pay for executives, freeze wages for hourly associates and cut back on some benefit plans, including its 401(k) program.
“We felt the pain,” Shaner said. “(Companies) were forced to be in a position where you had to marshal all of your cash flow to pay the banks to keep them current, to meet your debt covenants, to spend what capital you had to spend, and just keep your head above water. Our commitment was we were going to be here as a company, we’re going to make it through this and come out the other end stronger and better than ever.”
Shaner said the first things the company will reverse are the pay cuts and benefits cuts.
“We didn’t want to do it, but we had to do it,” he said. “When we get back to a more normal (revenue per available room) growth and profitability, we’re going to take care of those people first. We have some deferred capital that we’re going to need to address.”
Shaner credited franchisors with being flexible when it came to property improvement plans, and he plans to take care of some capital improvements as quickly as possible.
“We did put some more equity into the company. You’re either committed, or you’re not committed,” he said. “The people that were not committed, they’re gone. They’ve sold out or merged. Most of the better-managed companies are fine.”
Shaner made it no secret that he desires a different approach to business from politicians.
“I think we’re well-positioned for recovery,” he said. “My biggest concern is what’s going on at the national level. We need to get back to pro-growth economic policies. We have to focus on not penalizing people that take risks and are successful. Creating an atmosphere where small business is willing to invest again and hire people, spend money. There is a real sense in the business community, we really don’t know as an industry what’s coming next. Washington is talking about more tax increases, more mandates, more regulation. … Investing in the hotel industry is a long-term investment. You have to have confidence that you understand the economics on which you’re basing your capital investments. I view that as the biggest concern that we have right now. Hopefully we’ll get some intelligent decision on tax and growth.”