Hotel owners continue to bust the pandemic

The onset of vaccines against Covid in the U.S. and Europe raised the prospect of people traveling again and sent actions to hotel owners and operators. But investors and analysts say reserves will take years to return to pre-pandemic levels. Meanwhile, the industry is facing growing financial stress as homeowners struggle to pay their mortgage bills, wages and other expenses.

Despite the record drop in bookings, many hotels have been able to remain open thanks to bank debt relief and temporary government aid such as the Wage Protection Program. Now, some lenders are starting to lose patience, brokers and investors say, which could lead to an increase in foreclosures and troubled property sales during the first half of 2021.

For hotel owners, “it’s all about surviving,” said Greig Taylor, managing director of consulting firm AlixPartners LLP.

In the short term, the slow pace of vaccinations and the persistently high number of Covid-19 infections are likely to continue to dampen reserves. In a November report, S&P Global Ratings estimated that revenue per available hotel room fell 50 percent in the U.S. by 2020. The rating agency expects revenue to recover in 2021, but estimates it will still be from 20% to 30% less than in 2019. It does not expect revenues to fully recover before 2023.

Public markets are equally pessimistic. Although the FTSE Nareit Equity Lodging / Resorts index rose in November after news of success in vaccine trials, it still fell 25% in 2020. The S&P 500 index rose 16% in the same period .

Business travel is a special concern. While some analysts expect tourism to pick up again at a near-normal pace in the second half of 2021 in many places, lower costs and rising popularity of virtual meetings could mean fewer corporate credit cards will be spent. to hotels in the foreseeable future. In a recent report, consulting and accounting firm PricewaterhouseCoopers said some business trips may never return.

“I think the biggest change will be last-minute business trips on the road for 100 or 150 days a year,” said Michael Bellisario, a senior research analyst at Robert W. Baird & Co. “Because I think they’re going to say, ‘Do I need my employer to spend money on this? Can we do it through a phone call? Can we do this with Zoom?'”

This is a problem because business travelers are usually the most profitable customers of hotels. They often book at the last minute and tend to be less concerned about costs than leisure travelers. Hotels in big cities like New York or Chicago that depend on business travelers will take a long time to recover from the crisis, Bellisario said.

Nayan Patel, owner of seven hotels in the Washington, DC area, including the Georgetown Inn, said his income has dropped about 80 percent compared to a year ago. Business travelers, once a major source of income, have virtually disappeared. He said he recently closed one of his properties, the 76-room West End hotel, because the two or three bookings per night could not even be paid for by reception staff, although he plans to reopen one. once businesses recover. “If you look at our numbers, they’re abysmal,” he said. “I don’t try to look at them every day, because it’s too depressing.”

Patel expects the business travel drought to weigh on its earnings as well in 2021. “If you look at next year’s schedule for the DC convention center, it’s pretty much empty,” he said. “This is a major problem.”

Thanks to the absence of debts from his lenders, Mr Patel has been able to maintain his properties, he said, but others have not had the same luck. Although the number of foreclosures is still low, it has been increasing. Debt suspension agreements negotiated in the spring expire, allowing many hotel owners to choose between asking for help again or handing over the keys. Mark Schoenholtz, vice president of real estate services firm Newmark, said he expects increased sales of troubled hotels in early 2021 as new rises in infections lead to property closures. “This will force both homeowners and lenders to bring things to market,” he said.

Outside of business travel hotspots and large conference hotels, the outlook is less bleak. Millions of Americans who have been mostly confined to their homes for most of a year are eager to travel again. Analysts say they expect an increase in bookings to popular leisure travel destinations like Miami or San Diego once vaccines are widely available and people feel safe.

Alan Lieberman, the South Beach group has 17 hotels in Miami Beach, including the Chesterfield Hotel & Suites and one in nearby Hollywood Beach, said its properties were almost booked for New Year’s Eve. His main problem right now is finding workers, he said. His company fired about 1,200 people in the spring when it temporarily closed its hotels. He is now struggling to convince some of these former employees to return to their former salaries, which he says are often not much more than what they have earned through extended unemployment benefits. In some cases, he said, the lack of staff has meant administrators have to clean rooms.

While it expects occupancy to be almost normal by May, when the high tourist season is over, most rooms have opted for bargain prices. Its revenues will not return to pre-pandemic levels until cruises and conferences return, he said. Still, it is considered lucky to own hotels in a sunny spot with a beach. “I would be out of business in Chicago or New York,” he said.

Write to Konrad Putzier to [email protected]