A bankruptcy case under way in Midland federal court highlights troubles facing hotel developers after a frenzy of building during the oil boom and plummeting rates now that industry activity wanes.
The business isn’t what it was last year, and that means a pinch for some of the developers who are newer to the local market.
A group of companies managed as Dallas-Fort Worth-based RREAF O&G Portfolio owns eight Permian Basin hotels, with two in Midland. The company filed July 8 for Chapter 11 bankruptcy, citing a business “closely tied to the oil and gas labor market, as many of the workers in these areas do not live in the area and therefore require hotel accommodations.”
In court papers, the company cites the value of hotel properties as about $57 million per an April appraisal. The total debt of the company alleged by a lender is $44.2 million.
The Midland hotels are both Comfort Inn & Suites, at 910 W. Interstate 20 and 920 W. Interstate 20.
None of the hotels were in Odessa. The other properties, all operated by the management company Channel Point Hospitality, are in Andrews, Pecos, Cuero, Port Arthur and Hobbs, N.M.
RREAF’s Dallas-based attorney did not respond to a request for comment on Monday.
But other hoteliers describe an oversupply in the hotel market after years of building. Hotels that were charging more than $300 per night with near full occupancies see less of the demand that enabled them to do so.
Meanwhile, costs of operating a hotel remain high and the labor market for hospitality workers tight, said Keith Dial, past president of Permian Basin Hotel & Lodging Association and an operating partner with MTP Hospitality, which owns the DoubleTree Hotel in Midland, among others in Odessa.
“Everyone is down,” Dial said. “If anybody tells you they are up against last year, they are not telling you the truth, because nobody is. It’s just a fact. We are all in the oil business, and when oil companies are cutting back, especially as dramatically as they were in the second quarter, it’s going to have an effect.”
The Odessa Convention and Visitor’s Bureau reported most recently in June that the most expensive weekdays saw about 78 percent occupancy among Odessa hotels, while the latter half of the week saw rates at about 50 percent.
At the same time, increasing apartment vacancies put greater pressure on hotels specializing in dormitory services, Dial said. Owners of hotels that opened during the downturn also saw a market promising less of a return on their investment than rivals who opened during the peak year.
But Dial said the market correction, which means relief for customers, was overdue, even if it fails to offer much of a lure for clients who typically visit the Odessa and Midland area for business. He said he was unaware of the circumstances surrounding RREAF’s bankruptcy filing.
“Maybe they just got overextended, who knows,” Dial said. “But there are quite a few properties that are new enough that you know their mortgage structure is pretty high. That’s your biggest hit right there. For some of them, it’s probably bigger than their payroll.”
(c)2015 the Odessa American (Odessa, Texas)
This article was written by Corey Paul from Odessa American, Texas and was legally licensed through the NewsCred publisher network.