Hotel owners continue to move away from the pandemic

The beginning of Covid vaccinations in the US and Europe raised the prospect that people would start traveling again and sent actions to hotel owners and operators. But investors and analysts say the bookings will take years to return 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 decline in bookings, many hotels have managed to stay open due to reduced bank debt and temporary government aid, such as the Wage Protection Program. Now, some lenders are starting to lose patience, say brokers and investors, which could lead to an increase in foreclosures and sales of distressed properties in the first half of 2021.

For hotel owners, “it’s about survival,” said Greig Taylor, general manager at consulting firm AlixPartners LLP.

In the short term, the slow pace of vaccinations and a persistently high number of Covid-19 infections will continue to hamper reservations. In a November report, S&P Global Ratings estimated that disposable hotel room revenue fell by 50% in the US in 2020. The rating agency expects revenue to increase in 2021, but estimates that it will continue to be % to 30% lower than in 2019. Revenues are not expected to fully recover before 2023.

Public markets are just as pessimistic. Although the FTSE Nareit Equity Lodging / Resorts index rose in November following news of successful vaccine studies, it fell another 25% in 2020. The S&P 500 index rose 16% over the same period.

Business travel is a special concern. While some analysts expect tourism to resume at an almost normal rate by the second half of 2021 in many places, reduced costs and the growing popularity of virtual dating could mean fewer corporate credit cards will be passed. to hotels in the near future. In a recent report, accounting and consulting firm PricewaterhouseCoopers said some business trips may never return.

“I think the biggest last-minute change will be business people traveling 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’ll say, ‘Do I need my employer to spend money on this?’ Can we do this through a phone call? Can we do this over Zoom? ‘ ”

This is a problem, as business travelers are usually the most profitable hotel guests. They often book at the last minute and tend to be less worried about costs than leisure travelers. Hotels in big cities, such as New York or Chicago, which depend on business travel, will take a particularly long time to recover from the crisis, Mr Bellisario said.

Nayan Patel, who owns seven hotels in the Washington, DC area, including the Georgetown Inn, said his revenue has dropped about 80 percent from a year ago. Business travelers, a former 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 a night could not even pay for its reception staff, although he plans to reopen once it resumes. business. “If we look at our numbers, they are abysmal,” he said. “I don’t try to look at them every day because it’s too depressing.”

Mr Patel expects the drought in business travel to have an impact on his earnings in 2021. “If you look at next year’s calendar for the DC convention center, it’s practically empty,” he said. “This is a major problem.”

Due to the removal of debts from his creditors, Mr. Patel managed to keep his property, he said, but others were not as lucky. Although the number of forced executions is still low, it has increased. Debt settlement agreements negotiated in the spring expire, leaving many hotel owners to choose between asking for help again or handing over the keys. Mark Schoenholtz, vice president of real estate services Newmark, said he expects increased sales of troubled hotels in early 2021 as new increases in infections lead to property closures. “This will force the hands of both homeowners and creditors to bring things to market,” he said.

Apart from the hot spots for business travelers and the big conference hotels, the prospects are less bleak. Millions of Americans who have been largely locked up in their homes for most of a year are being eaten up to travel again. Analysts say they expect an increase in bookings in popular travel destinations, such as Miami or San Diego, once vaccines are widely available and people feel safe.

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

Although occupancy is expected to be close to normal by May, when the high tourist season ends, most rooms have opted for bargain rates. Its revenues will not return to pre-pandemic levels until the return of cruise ships and conferences, he said. However, it is considered lucky to have hotels in a sunny place with a beach. “I would be out of business in Chicago or New York,” he said.

Write to Konrad Putzier at [email protected]