There has never been a more compelling time for a hotel conversion. After some painful thinking and a few tries at the deal wheel, I’ve discovered “putting lipstick on a pig” may be a viable business philosophy today. With current hotel values at a virtual stalemate between buyers and sellers, and hotel lenders sometimes heard from but rarely seen, my question lately has been: “What now?”

We’ve all heard the rhetoric of the 2002-07-development phase for hotels: ”Not overbuilt, but rather under demolished.” Now may be the best time in history to capitalize on sub-prime hotels sitting on prime hotel real estate. Hotel foreclosures are ramping up at a record pace. If they’re not already in foreclosure, certainly the Ugly Bettys’ revenues are declining and are therefore putting huge pressure on their owners.

These hotels have additional problems; often they have exterior corridors or maybe poor plumbing, leaky roofs or dilapidated HVACs, just to name a few potential challenges. However, the compelling factors are location and hopefully a good set of bones.

Construction costs are also rumored to be considerably less than just 12 months ago. I say rumored only because very few hotels are under construction, so realized savings are hard to determine. Taking an existing exterior corridor hotel, reducing it to its most usable state and adding interior corridors to rebuild it to current newer franchise standards may be done for less than 75 percent of new construction costs. This will translate to significant cost savings from the peak of 2005-07. However, there may be a hold period of several quarters until the debt markets unfreeze and hotels and hotel development are once again favorable investment vehicles.

The hotel may have to be operated under a short-term franchise agreement until renovation begins, which should help in covering operating costs or potentially beat down the deal cost by returning some cash. Franchisors are typically more flexible in this environment. Keeping the existing flag may help a franchisor in the short term. Foreclosure also allows the new buyer to escape the dreaded early termination fees of most licensing agreements.

Selecting a new franchise for a redeveloped hotel is obviously best done prior to any renovation. Your architect should be in contact with your new franchisor from the outset to ensure all parties are moving in the same direction with regard to achieving a new and fresh look for the hotel. Select your architect wisely; working with a franchisor preferred firm may also provide dividends.

Finding available funds remains paramount. Purchasing these “under demolished” assets often requires all cash and a lot of fortitude, but they can be had (and are being had) for very modest sums. With a lot of passion and the right creative team, you may find a lender or investor who can see the upside of your creativity.

Keep in mind many lenders involved feel having a foreclosed hotel on their books reflects more poorly on them now than ever. Translation: the lenders may take a loss on their loan to move the asset quickly. In some cases, the buyer may even receive some minimal “reps or warranties” not traditionally given in these types of dispositions. Buyers beware, though: buying at a foreclosure auction can be exasperating. If there are no bids, the lender generally takes back control. This makes it imperative that you stay in contact with the bank, the special servicer, if one is involved, and/or the selling broker.

Lastly, remember to work with the municipality. Communities tend to be sensitive to closures, which are often necessary to upgrade and rebrand. Closing is often the most efficient way to renovate, but this scenario certainly has serious consequences to neighborhoods, employees and regular customers. Plan well and communicate better. Several headaches can be avoided when all constituencies are on the same page.

Again, with the right location, good bones, a passionate and creative team, some patience and even some good luck…perhaps now is the time. Let’s renovate!

Josh Williams is a senior managing director of Paramount Lodging Advisors based in Charleston, SC. Contact him at jwilliams@paramountlodging.com or 843.324.5301. Paramount Lodging Advisors specializes in full service hotel brokerage and advisory, debt and equity sourcing, international hospitality executive search and asset management advisory.