Abstract
The deal for the fictitious Warren Inn is about to come apart before the hotel is even completed. A microcosm of many hotel deals gone bad, this project suffers from an overbuilt market, unrealistic pro formas, dismal economic prospects, and an overextended developer. The case examines six workout scenarios from the money partner's perspective: enforce the terms of the loan, restructure the loan and keep the client, choose one of three courses after removing the developer (sell immediately, complete and sell, or complete, operate, and sell), or consider conversion to another use. This article makes the case for conversion by running hypothetical analyses of return and cash flow and by examining tax benefits that accrue to real estate used for affordable housing.
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