Hotels are one business that could benefit from the $2-trillion economic stimulus bill that was passed Wednesday by the U.S. Senate and is now being considered by the House. Hotel executives said the bill helps the industry in some ways, but more needs to be done.
REPORT FROM THE U.S.—The U.S. House of Representatives is considering an economic stimulus bill that it could pass Friday to aid businesses and individuals who have been affected by the COVID-19 outbreak. Hotel executives have identified parts of the bill that could help the hotel industry during these trying times, but more help is needed, sources said.
Third-party hotel management company Chesapeake Hospitality has laid off approximately 1,500 people of its total staff of 2,100. President and CEO Chris Green said he first looked through the bill from a standpoint of how it could help those employees who were laid off.
One section of the bill calls for an emergency increase in unemployment benefits, which Green said would be important for hotel staff.
“It’s valuable because it’s going to help people with the sometimes-way-too-low minimum payments or maximum payments for unemployment, and also the short-time compensation payments,” he said. “For states that don’t have unemployment compensation for people who are just getting their hours cut, that portion (of the bill) is really strong as well.”
Mary Beth Cutshall, SVP and chief development officer at Hospitality Ventures Management Group, also said the emergency employee assistance part of the bill caught her attention.
“The emergency employee assistance aspect of it, how it helps associates of our organization or any other organization in the industry, is first and foremost really nice to see, especially if this gets voted in. (It would be) a relief to the individuals on the front line, the hourly associates,”she said.
Cutshall added that her company is still looking over the bill to understand how it could help HVMG.
Loan availability, SBA help
The bill offers loan assistance to small businesses with fewer than 500 people, which Green said is a value to Chesapeake.
“When I look at this purely as a management company … management companies are primarily payroll organizations. So most of my expense other than an office is really payroll that I use to support all of our third-party clients,” he said.
Since the bill was put together so quickly, the government likely will have to go back and make amendments because there will be elements that were put in unintentionally or by mistake that don’t work, said Ray Martz, EVP and CFO of Pebblebrook Hotel Trust.
As the bill is currently written, it does a good job of helping employees, he said. When it comes to help for companies, Martz said it depends on who you are.
“For the smaller operators, there certainly are a lot of benefits, at least from what we understand so far, and we’ll get to the details in coming days, but there’s a whole (Small Business Administration) component,” he said.
He said the industry should thank the American Hotel & Lodging Association for its work in educating people at the SBA level “because before, when (the government) would look to see if you qualify (for loans) as a small business, they would look at the overall entity,” he said. “Let’s say an owner owned a hotel and Marriott was the manager; they would circle up the entire organization looking at Marriott to say, ‘Marriott, you have 40,000 to 50,000 workers all over, you’re not a small business.’”
That has been revised, he said, so the SBA now looks at the property level rather than the larger company.
“What that means now is an individual hotel—even though you're managed by a small operator or Marriott or someone else—you can qualify for that,” he said.
To qualify, Martz said a hotel has to have fewer than 500 employees or bring in revenues of less than $35 million*.
“That’s key because it will probably include a lot of hotels,” he said. “It won’t include the big-box hotels or larger properties. Once you start going over 500 rooms, you’re probably not going to get into that.”
A hotel with more than 500 rooms could get up to $10 million per property, he said, and that money can be used for payroll to maintain workforce or hire back employees or use it for ground rent, interest on mortgage and utilities.
The bill goes some of the way in helping hoteliers, but not all the way, Martz added.
“It certainly helps out, but it’s not going to solve every problem,” he said. “This is where we need to educate the policymakers that it’s great to have these policies for employees to make sure they can get pay and employee benefits, but if there’s no company for them to come back to, if there’s no hotel for them to come back to because the person who owned the hotel or the business can’t open, they’re insolvent, then it’s kind of a meaningless benefit.”
Pebblebrook has shut down operations at most of its hotels and the vast majority of employees are affected, Martz said. Hotels that remain open include a private beach club resort in Florida where people can still practice social distancing on the beach; a hotel in Washington, D.C., which benefits from all the lobbying and legislation happening there; and a couple hotels in San Diego benefiting from border patrol.
Tax provision benefits
According to The New York Times, industry organizations have been lobbying for a provision called “Technical Amendments Regarding Qualified Improvement Property,” which would allow hoteliers who spent money on renovations in the last two years to accelerate how they write off those costs to get an immediate tax refund, which could be used to cover bills amid the COVID-19 crisis.
Cecil Staton, president and CEO of the Asian American Hotel Owners Association, said his organization is grateful this tax change has been made.
“This was a drafting error that has lingered since the passage of the Tax Cuts and Jobs Act and has remained a challenge for hoteliers,” he said via email. “It was long considered a political negotiating point during many unrelated topics, and we are relieved that the political nonsense surrounding this important provision has ended. We strongly support the inclusion of this technical correction on qualified improvement property.”
This bill could provide some relief to the industry, but Green said it doesn’t change his long-term view, and he expects to see more tough times ahead.
“On the short-term view for my broader business, I don’t see occupancy coming back until we have surety of safety,” he said. “I’m forecasting eight to 10 weeks of really down and then slowly ramping up. I’m really basing that off of what I saw from the numbers in China.”
People are still going to be hesitant to travel because they want to be sure they are safe before doing so, he added.
“CBRE said 37% (revenue-per-available-room) drop this year. I would be happy if that’s true,” he said.
When asked if the bill changed his short-term or long-term view on the business impact of COVID-19, Martz said it depends on how it affects consumer behavior.
“It would seem like, at least in the near term, some of these group meetings, whether it's going to a conference or convention, or concert or football game … that won't come back immediately until there’s a vaccine for this COVID-19 because people are trying to practice social distancing … so they'll probably make that segment of demand challenged,” he said.
Martz said he does believe leisure will come back quicker than group business.
“The leisure side consumer was traveling a lot before (COVID-19),” he said. “We saw a lot of leisure travelers in the U.S. go to Europe for vacations; given what’s going on now in Italy and France and Spain, this may cause some of our U.S. travelers to maybe stay here, so maybe that helps summer travel.”
Staton added that “any relief package must address the strong likelihood that this will be a prolonged pandemic where travel levels do not return to a sustainable level for quite some time.”
“When it comes to what is made available to hoteliers and their employees, this bill provides short-term relief but in the long term is a stopgap measure at best,” he said. “It initiates a good framework to assist the industry and its workers, but without addressing hotel owners' lack of liquidity in a substantial and meaningful way, the industry will still suffer because of unimaginably low occupancy rates. Our industry needs Congress to recognize that this crisis is having a profound effect on hotel owners and their employees.”
*Correction, 31 March 2020: This story has been updated to include the correct criteria for emergency SBA loans.