Hospitality Workouts in 2025: Why Workout Professionals Are a Rising Solution for Hotels in Distress
By Joe Corcoran*

The hospitality industry experienced massive swings over the course of the last five years, first with hotels reporting record low occupancy in 2020 fueled by the COVID-19 era of plummeting travel. This was followed by a subsequent recovery marked by record-high Revenue Per Available Room (RevPAR) in 2024, as tracked and reported by hospitality industry analytics organization, Smith Travel Research, a subsidiary of CoStar (STR). Few industries or property types saw such an extreme decline and resurgence of pent-up demand.

Yet there is more to the state of hospitality than meets the eye. A host of underlying factors paint a picture that underscores the growing need for workout services and receiverships among hotel owners, lenders and other stakeholders.

Hotels are an area where receivers and other workout professionals can add tremendous value during times of distress.

Today’s Hospitality Challenges

The hospitality industry experiences pressure from countless economic and market factors, some obvious and some more subtle. While it’s important to examine travel trends, employment data, and the seasonal effects impacting hospitality operations, it’s also equally critical to consider adjacent trends. These might include national shifts, such as the impact of government furloughs on travel and hotel stays, or the recent impact of personnel and travel cuts conducted by the Department of Government Efficiency.

Additionally, there are many regional and market-specific factors at play. During the time of the Los Angeles fires in early 2025, for example, many homeowners evacuated to area hotels, bolstering that market short term. This also occurred in Tampa and North Carolina following the hurricanes in 2024. These short-term factors can lead to national figures looking stronger than what is actually happening in most markets.

In many cases, the reality is different from what the national picture shows. Take for example, a Marriott property currently in receivership in Portland, Oregon: a market that experienced declining population for several years following the pandemic and continues to suffer the effects of that decline. Or, a Brea, California Embassy Suites property in receivership that was closed for two months during the pandemic, with a restaurant and bar that remains closed today due to lack of available labor.

Each market has individual nuances and factors in addition to overarching “headwinds,” as global commercial real estate services and investment company CBRE pointed out in a September State of the Union report. “Soft top-line growth and elevated inflation will put sustained pressure on hotel profits and margins,” CBRE noted, referencing below-average GDP growth and “sticky” inflation. CBRE’s report also pointed to several other stressors putting downward pressure on hotels:

•  Persistent unemployment around 4.4%

•  Declining RevPAR, a trend which the luxury hotel segment is outpacing

•  Increasing short-term rental demand, with hotel demand that is being hampered by competition from alternative lodging options

•  Declining inbound international visitation, which fell 3.1% year over year in July. This trend is accompanied by rising outbound international travel.

Global hotel data and insights provider STR also pointed to several of these challenges in a recent August market report.

As Amanda Hite, STR’s president, reflected in that report, “[u]nrelenting uncertainty and inflation, coupled with tough calendar comps and changing travel patterns, have caused lower demand.”

While none of these factors are currently driving a significant wave of distress, any markets or properties that have a large reliance on international or business travel will face increasing pressure, particularly as operating costs continue to rise to the tune of 3% year over year.

Mounting Financial Pressures for Hotels and Lodging

In addition to operational factors, many hotel owners and borrowers are facing significant financial challenges as the industry faces a post-pandemic debt cliff. Owners who took out loans in 2021 when interest rates were hovering around 3% now face loan maturities and capital due for Property Improvement Plans (PIPs). These are standard industry agreements between hotel owners and brands that ensure owners uphold brand standards and are able to deliver a consistent guest experience. A confluence of satisfying debt obligations while needing to complete PIP requirements will create a struggle for some operators with upcoming loan maturities. We expect some ownership groups will be unable to see a path forward given these constraints, while lenders, including banks, are likely to take action in some instances.

It’s not necessarily a perfect storm, but we are in an environment where more hotel operators, particularly under large brands, will face these pressures.

A Major California Resort in Distress

The pressures mentioned above led to the recent bankruptcy of a major resort development project in La Quinta, California, leading to the acute need for a workout team. In this case, DWC is serving not in a receivership capacity, but as Chief Restructuring Officer (CRO) for the bankruptcy of this 525-acre multi-brand Coachella Valley resort, known as SilverRock.

The court appointed the CRO as part of a 2024 Chapter 11 Bankruptcy reorganization for the project, which started prior to the pandemic and thereafter faced surging construction costs. It was made more complex by the fact that the resort includes a golf course on city-owned land.

Alongside the Delaware Bankruptcy Court, the City of La Quinta, and a number of other creditors and stakeholders, the CRO team is tasked with providing an opportunity for a new owner to shape the property that includes high-end private residences, world class hotels and a conference center, all located adjacent to the Arnold Palmer-designed golf course situated on the City of La Quinta-owned land.

The CRO serves two main functions. The first being financial, which includes understanding and identifying the secured creditors, working closely with them, as well as the debtors, debtors’ counsel, and the city, and completing property-condition and cost-to-complete reports. The second is asset management, which includes hiring a general contractor to stabilize the property through measures such as dust and erosion control, and examination of the site, which had been subject to the elements for 22 months.

The restructuring process also involves ensuring insurance requirements are met, developing a long-term budget, allowing the estate to obtain debtor-in-possession (DIP) financing and taking over accounting processes to maintain the site. To add to the challenge, the project was in various stages of construction completion, ranging from 30% to 80%.

The property has gone through an extensive sales marketing process through Jones Lang LaSalle (JLL) and the selection of a winning bidder through a stalking-horse and auction process.  Currently, the matter is being heard in Bankruptcy Court to approve the Sale Motion and move toward final plan confirmation.

The Role of Workout Professionals and Receivers for Hotels in Distress

Not all cases are as severe as that of SilverRock. Of course, as loan covenants come due and hospitality assets face cash flow issues and capital requirements for PIPs, owners will increasingly seek the expertise of workout professionals and receivers to preserve value.

Fiduciaries are able to step in to place financial controls, shore up operations, restructure debt and take whatever measures may be necessary to preserve value. In hotels, this involves a few specific areas of focus:

Operations — Hotels bring a few unique operational elements due to the nature of their business. These usually include staffing, service delivery, and brand or franchise compliance in addition to revenue management. Although all property types have their issues, the operational considerations for hotel receiverships and hotel workout assignments are significant.

Brand management — Among the most important factors to brand management is keeping in good standing with the brand, whether it is a national brand like Marriott or Hilton, or a smaller regional brand. With each brand having its own requirements to maintain good standing with the franchise, so much of a hotel’s value is tied to its name and reputation. A property that loses its brand, results in a huge loss in value to the owner.

Property Improvement Plans (PIPs) — Whether a PIP is current or is past due, this is a critical area of focus in a workout scenario as PIPs are contractual agreements between hotel owners and brands to keep up with specific upgrades, renovations and other measures to maintain the brand’s standards and guest experiences. These required improvements may relate to guest rooms themselves, back-of-house and staff areas, or guest common areas such as reception. PIPs ensure hotel brands are able to maintain profitability over time.

As receivers, such as in the recent cases involving assignments with brands like Marriott and Embassy Suites, we need to adhere to the brand, maintain operations and support guest services. We may also work to resolve any back franchise fees, seek new third-party management and find opportunities for areas that were underperforming under previous ownership. As an example – a Portland Marriott property was placed in receivership in 2024, after the area population had declined roughly 3% from 2020 to 2023 and area conferences and conventions had fallen. Situated on Portland’s waterfront, the hotel was located in the midst of the area’s distress. As receiver, DWC stepped in to stabilize the property and market it for sale.

Similarly, although not as a receiver, but as a consultant, we recently applied our hospitality experience to preserve value for a 228-room Embassy Suites hotel located in Brea, California that was facing occupancy and labor challenges carrying over from pandemic-era distress.

Like other receiverships, bankruptcies and workout scenarios, it’s important for us to apply our problem-solving skills to preserve value. In hospitality, the needs can be even greater, as our work often involves improving operations, completing PIPs, and maintaining brand standards. With this higher level of need comes a greater opportunity to provide support and recovery for owners, lenders and other entities in distress.

The Future of Hospitality Distress

As workout professionals, we all should examine both the macro and micro factors placing pressure on hospitality assets, particularly with the uncertainty permeating all sectors and industries in 2025. It is through this close look at the industry generally, and markets specifically, that we will be able to identify the greatest opportunities to serve our clients and partners going forward.

*Joe Corcoran, Executive Vice President at DWC, leverages extensive real estate and hospitality experience to provide receivership and real estate services nationally. A co-founder of TCOR Hotel Partners, he has overseen over $50 million in capital projects and brings deep expertise in hotel operations, transactions, and asset management.