Hotel owners continue to roll over from pandemic

The launch of Covid vaccinations in the US and Europe has given rise to the prospect of people resuming travel and rising shares in hotel owners and operators. However, investors and analysts believe that discussions will take years to rise again to pre-pandemic levels. Meanwhile, the industry is facing increasing financial stress as property owners struggle to pay their mortgage bills, wages and other expenses.

Despite the record drop in bookings, many hotels were able to stay open thanks to debt relief from banks and temporary government assistance such as the Paycheck Protection Program. Now some lenders are starting to lose patience, say brokers and investors, which could lead to an increase in negative property and emergency property sales in the first half of 2021.

For hotel owners, “it’s all about survival,” says Greig Taylor, a managing director at consulting firm AlixPartners LLP.

In the short term, the slow rate of vaccinations and the persistently high number of Covid-19 infections are likely to continue to hold discussions. In a November report, S&P Global Ratings estimated that revenue per available hotel room would fall by 50% in the US by 2020. The rating agency expects revenue to increase in 2021, but estimates that it will still be 20 to 30% lower than in 2019. It does not expect revenue to fully recover before 2023.

Public markets are equally pessimistic. Although the FTSE Nareit Equity Lodging / Resorts Index rose in November following the news of successful vaccination trials, it fell by 25% in 2020. The S&P 500 index rose 16% over the same period.

Business travel is of particular concern. While some analysts expect tourism to resume at an almost normal pace in many places by 2021, cost savings and the growing popularity of virtual meetings could mean fewer corporate credit cards will be wiped out of hotels in the foreseeable future . In a recent report, PricewaterhouseCoopers, an accounting and consulting firm, said that certain business trips may never return.

“I think the biggest change is going to be last minute business travelers 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 this by phone call? Can we do that with Zoom? ”

This is a problem because business travelers are usually the most lucrative customers of hotels. They book regularly at the last minute and are less concerned about the cost than travelers. It will take a very long time to repair hotels in big cities like New York or Chicago that are dependent on business travelers for the crisis, said Mr. Bellisario said.

Nayan Patel, who owns seven hotels in the Washington, DC area, including the Georgetown Inn, said his income dropped about 80 percent from a year ago. Business travelers, formerly a major source of income, have virtually disappeared. He said he recently closed one of his properties, the West End hotel with 76 rooms, because the two or three bookings per night could not even pay for his staff at the reception desk, although he plans to to open as soon as the business starts again. “If you look at our numbers, it’s awful,” he said. “I do not try to look at it every day because it is too depressing.”

Mr. Patel expects that the drought for business travel will also weigh on its earnings in 2021. “If you look at the calendar for next year’s conference center for DC, it’s virtually empty,” he said. “This is a big problem.”

Thanks to the lending of his credit providers, Mr. Patel is holding on to his properties, he said, but others have not been so happy yet. Although the number of decisions is still low, it has increased. Debt-tolerance agreements negotiated in the spring expire, leaving many hotel owners with the choice of asking for help again or handing over the keys. Mark Schoenholtz, vice president of real estate services firm Newmark, said he expects an increase in emergency hotel sales in early 2021 as new infections lead to property closures. “It will force the owners and creditors’ hand to bring things to market,” he said.

The outlook is less bleak outside of business equipment and large conference hotels. Millions of Americans who are usually confined to their homes for a better part of a year want to travel again. Analysts believe they expect an increase in bookings in popular leisure travel destinations such as Miami or San Diego, once the vaccines are widely available and people feel safe.

Alan Lieberman, whose South Beach Group owns 17 hotels in Miami Beach, including the Chesterfield Hotel & Suites, and one in nearby Hollywood Beach, said his properties were booked almost for New Year’s Eve. His biggest problem at the moment is finding workers, he said. His company fired about 1,200 people in the spring when it temporarily closed its hotels. Now he is struggling to persuade some of the former employees to get back on their old wages, which he says are often not much more than what they have amassed through extensive unemployment benefits. In some cases, he said, staff shortages meant managers had to clean rooms.

Although he expects the occupancy to be almost at normal levels until May, when the high tourist season decreases, most rooms go for cheap rates. Its revenue will not be at pre-pandemic levels again before cruise ships and conferences return, he said. Still, he is happy to own hotels in a sunny spot with a beach. “I will not work in Chicago or New York,” he said.

Write to Konrad Putzier at [email protected]