Hotel owners continue to recover from the pandemic

The start of Covid vaccinations in the US and Europe raised the likelihood that people would return to travel and the shares in hotel owners and operators skyrocketed. But investors and analysts say it will take years for bookings to rise back to pre-pandemic levels. Meanwhile, the industry is facing increasing financial stress as property owners struggle to pay for their mortgage bills, wages and other expenses.

Despite the record decline in bookings, many hotels have managed to stay open thanks to bank debt relief and temporary government support such as the Paycheck Protection Program. Now some lenders are starting to lose patience, brokers and investors say, which could lead to an increase in foreclosure sales and the sale of distressed properties in the first half of 2021.

For hoteliers, “survival is all about survival,” said Greig Taylor, general manager at consulting firm AlixPartners LLP.

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

Public markets are also pessimistic. While the FTSE Nareit Equity Lodging / Resorts Index boomed in November following news of successful vaccine trials, it still fell 25% in 2020. The S&P 500 index rose 16% in the same period.

Business travel is a particular concern. While some analysts expect tourism to resume at a near-normal pace in many places in the second half of 2021, cost savings and the rising popularity of virtual meetings could mean fewer business credit cards swiped at 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 change will be the last-minute business travelers on the road 100 or 150 days a year,” said Michael Bellisario, senior research analyst at Robert W. Baird & Co. “Because I think they’re going to say, ‘Does my employer have to spend money on this? Can we do this over the phone? Can we do this through Zoom?”

This is a problem, as business travelers tend to be the most profitable hotel customers. They often book at the last minute and are generally less concerned about costs than vacationers. Hotels in major cities like New York or Chicago that rely on business travelers will take a particularly long time to recover from the crisis, Mr Bellisario said.

Nayan Patel, owner of seven hotels in Washington, DC, including the Georgetown Inn, said his revenues are about 80% lower than a year ago. Business travelers, previously an important source of income, have virtually disappeared. He said he had recently closed one of his properties, the 76-room West End hotel, as the two or three bookings per night couldn’t even pay for his front desk staff, though he plans to reopen once things get back on track. get going. “If you look at our numbers, they are awful,” he said. “I try not to look at them every day because it is too depressing.”

Mr. Patel expects the business travel drought will continue to weigh on his revenues in 2021. “If you look at next year’s calendar for the DC convention center, it’s pretty much empty,” he said. “That’s a big problem.”

Thanks to the forbearance of his lenders, Mr. Patel has been able to keep his properties, he said, but others have not been so lucky. While the number of foreclosure sales is still low, it has risen. Debt settlement agreements negotiated in the spring expire, leaving many hoteliers with a choice between asking for help again or handing over the keys. Mark Schoenholtz, a vice president at real estate company Newmark, said he expects an increase in hotel sales in ailing hotels in early 2021 as new spikes in infections lead to property closures. “That will force the hand of owners and lenders alike to market things,” he said.

Beyond the business travel hotspots and large conference hotels, the outlook is less bleak. Millions of Americans, who have spent most of a year at home, are eager to travel again. Analysts say they expect to see a rise in bookings in popular vacation destinations like Miami or San Diego once vaccines are available everywhere and people feel safe.

Alan Lieberman, whose South Beach Group owns 17 Miami Beach hotels, including the Chesterfield Hotel & Suites, and one in nearby Hollywood Beach, said his properties were nearly full for New Year’s Eve. His biggest problem at the moment is finding employees, he said. His company fired about 1,200 people in the spring when it temporarily closed its hotels. Now he’s struggling to convince some of those former workers to get back on their old wages, which he said is often little more than what they’ve collected through comprehensive unemployment benefits. In some cases, he said, staff shortages forced managers to clean rooms.

Although he expects occupancy to be close to normal in May, when the high-tourism season ends, most rooms have gone for bargain prices. His earnings will not return to pre-pandemic levels until cruise ships and conferences return, he said. Still, he considers himself lucky that he has hotels in a sunny spot with a beach. “I’d go out of business in Chicago or New York,” he said.

Write to Konrad Putzier at [email protected]