In quest for survival, hoteliers weigh when to close
 
In quest for survival, hoteliers weigh when to close
09 APRIL 2020 9:05 AM

Hoteliers across the U.S. know occupancies are low, but the decision to remain open or shutter doors depends on whether it’s possible to operate with a reduced staff, circumstantial demand, social-distancing mandates and more.

REPORT FROM THE U.S.—With the coronavirus (COVID-19) pushing U.S. hotel occupancy rates to historic lows, hoteliers are faced with a tough decision: To close or not to close until travel demand returns to anything approaching normalcy.

Across the country, hoteliers are resorting to bare-bones staff and services, and they’re seeking relief from federal government programs, lender and utility providers.

Despite losing more than half of the previous occupancy rates within the past month, many hoteliers in cities such as Philadelphia, Washington, Memphis, Detroit and Milwaukee have opted to remain open while, in many cases, cutting staff by more than 90% and narrowing on-site food-and-beverage operations to the grab-and-go variety.

Meanwhile, many operators in cities such as New York and San Francisco have temporarily shut down because of a combination of lack of demand, social-distancing mandates from local governments and a risk-averse attitude towards the potential spread of the coronavirus among staff and guests.

Such decisions are being reviewed on a daily basis as hotel owners and managers enter what they say is unchartered territory.

“Clearly, this falls into the nightmare category for the hospitality business,” said Mount Vernon Company CEO Bruce Percelay, whose company owns and operates Boston’s Revolution Hotel.

Bruce Percelay,
Mount Vernon Company

Both RevMax Hospitality Consulting Services Principal Nagib Lakhani, whose asset management company oversees hotels in Milwaukee, Detroit and Syracuse, and Metropolitan Memphis Hotel & Lodging Association President and CEO Wayne Tabor said hotels with airline contracts have been spared some of the pain because of continued flight-crew occupancy.

“The hotels near the airports are doing OK,” Lakhani said. “At least we have a semi-predictable base.”

Additionally, the Revolution Hotel has benefited from a small contingent of longer-term renters in some of its 164 guestrooms as well as the fact that Boston’s college closures have forced many students from overseas to seek housing at the property, Percelay said.

Still, overall demand has been historically bleak.

For the week ending 28 March, U.S. hotel occupancy plunged to 22.6% from 68% a year earlier, while revenue per available room dropped 80.3% from a year earlier to $18.05, according to data from STR, parent company of HNN. For the year, STR is forecasting U.S. occupancy to fall to 38%, the lowest since the firm began tracking such data in 1987 and 17 percentage points lower than the current all-time low of 55% in 2009.

“Our focus has changed from, ‘How do we get our RevPAR and occupancy up,’ to ‘How do we survive this thing?’” said Tabor, who has worked in the industry for more than 50 years. “I thought I’d seen it all.”

As a result, hotels have either drastically cut back staff and services or have shut down altogether. Fairwood Capital Managing Director Ed Ansbro, whose company’s three hotels in Nashville, Little Rock and Monterey, California, had employed about 300 full-time equivalent people prior to the pandemic, said each of those properties are now down to a handful of people.

Lakhani said RevMax Hospitality’s five hotels, which had employed about 350 full-time workers and about 150 hourly employees, has eliminated its hourlies and reduced its full-time staff, including management, to about 45 people.

Nagib Lakhani,
RevMax Hospitality
Consulting Services

As a result, on-site restaurants have been shuttered so much that F&B service is predominantly grab-and-go, while services such as valet parking have also been temporarily suspended. Even at such reduced occupancy numbers, the prospect of staying open for those hotels is preferable to operating a shuttered property, which still requires utilities, security and engineering in the event that an on-site repair is needed.

“If you can run these things at some extremely reduced level and neutral at the house profit line, our view is that you try to keep them open,” said Ansbro, whose company’s Hyatt Regency Monterey Hotel and Spa is managed by Davidson Hotels & Resorts. “You basically have a GM, a chief engineer, a director of sales, maybe a front-office manager and maybe an executive housekeeper.”

Still, other hotel owners have decided that the effort isn’t worth it.

Pod Hotels Managing Director David Bernstein said his three New York City properties all had maintained at least a 90% occupancy rate before the pandemic’s impact. As of mid-March, all three hotels have shut down, he said. However, the brand’s franchised hotels in Washington, D.C., and Philadelphia, which are operated by Modus Hotels, remain open.

“We felt it was unfair to our guests and employees (to remain open in New York),” Bernstein said. “There was no demand.”

Other higher profile properties that have temporarily closed include San Francisco’s W hotel and Inn at the Presidio.

Financial relief
Regardless of operational status, hoteliers continue to turn to other sources for at least temporary financial relief. Lakhani said he was looking into the federal government’s Paycheck Protection Program, which offers forgivable loans worth eight weeks of payroll expenses (with a $100,000 maximum) to companies with 500 or fewer employees who will use the money to maintain compensation levels for workers as well to cover items such as mortgage interest and utilities.

Still, the amount forgiven is contingent on what percentage of employees the business rehires by 30 June, making the prospect potentially dicey for hotel owners.

“We don’t know what things will be like on 30 June,” Lakhani said. “Do we believe our hotels will be operating at a 70% occupancy rate, and that group business will come right back then? If it doesn’t, you would be utilizing these funds to bring people back to do what?”

Additionally, Lakhani, Ansbro and Bernstein all said their companies were corresponding with lenders in an attempt for further relief.

“We’re firing on all cylinders to make sure we’re in the best position,” said Bernstein, who added that the company’s lenders have indicated their willingness to bend on some terms.

“The balance sheet lenders, like your regional and local banks, are generally accommodating, because you have a personal relationship with them. They’ve been very quick to respond, saying, ‘We’ll do interest-only, and we’ll waive a few other things,” Lakhani said. “The other end of the spectrum is CMBS (commercial mortgage-backed securities) loans. If you are in any way non-compliant, then it gets sent to special services, which have a little more latitude but is usually opaque.”

Of course, many of the decisions, whether they involve staffing, financing or operating status, are based on forecasts, and hoteliers are hoping that summer will mark at least the beginning of a demand uptick.

Lakhani projected April and May to be “extremely soft months” with a gradual ramp-up starting in June. Meanwhile, Pod Hotels’ New York properties are taking reservations starting 1 July.

Still, Tabor mentioned one glimmer of hope among the on-site challenges the hoteliers are facing as they attempt to stay afloat.

“I was at the Peabody Hotel last week, and the executive chef was behind the line preparing room-service orders,” he said. “Those guests are getting top-quality room service.”

Metropolitan Memphis Hotel & Lodging Association President and CEO Wayne Tabor oversees an organization with approximately 200 members, including 97 hotels as well as restaurants and vendors such as cleaning companies and food purveyors. A second-generation hotelier, Tabor has worked in the industry for more than a half-century and has worked for Hilton and InterContinental Hotels Group as well as a number of independent operators. Tabor spoke with HNN contributor Danny King.

HNN: How fast has hotel occupancy fallen in Memphis?
Tabor: "We were in the high-70s (occupancy rate percentage). It was a really good first quarter. When (COVID-19) hit, it kind of tapered down, like the country did. Last week, our occupancy rate was 30.2%."

HNN: Have you ever seen anything before that’s impacted the hotel business like this?
Tabor: "I remember the first gas-shortage crisis in the 1970s, and I’ve been through several downturns as well as 9/11, but I’ve never seen an event impact our industry so fast and so huge in my whole career."

HNN: How many hotel members do you have, and how many have shut down?
Tabor: "We have 97 hotels. We’ve had three close, and I’ve talked to two of them–one shut everything down and there’s no way to communicate with them. There’s a 230-room DoubleTree Hotel Memphis Downtown that closed last week. It was going to go under renovation in June, and it was a group house, so they elected to shut down."

HNN: Which hotels are faring the best? Which are faring the worst. And why?
Tabor: "It seems like the Hampton Inns and the Holiday Inn Expresses are doing better than some of the larger, full-service upscale hotels–most of those are group houses, and we just don’t have those now. The airlines have to put their crews up, and there’s some construction work going on, so that’s continuing to feed some of the select-service hotels."

HNN: How are members addressing cancellations and refund requests?
Tabor: "If somebody cancels, they’re getting refunded. We’re trying to do the right thing. It’s nobody’s fault."

HNN: How are members addressing on-site staffing?
Tabor: "Some of these hotels doing 25 to 30 rooms a night are probably doing enough business to pay a few folks. The bigger hotels, they can probably operate on a floor or two. But I was at a 600-room Sheraton last week, and the GM was behind the desk checking in a guest. I know a couple of GMs in 150- to 200-room hotels that say they’ve done some cleaning duties and some repair duties. It’s probably going to stay like that for a while."

HNN: How are you advising members on how to approach federal government assistance?
Tabor: "I’ve spent the last week looking at the CARES (Coronavirus Aid, Relief Economic Security) Act. We’re trying to put together something that’s pretty easy to understand, but it’s a pretty confusing deal. We have laws firms and accounting firms that are members that have become very active with our association. They’re going to get some business out of this."

HNN: What are members telling you as far as the occupancy level threshold behind the decision to remain open or shut down?
Tabor: "One owner was saying, “If I can do 25% occupancy, I can stay open. Below that, I can close.” At that point, you have a manager on during the day and then a security person on at night to keep the property secure."

HNN: Aside from government assistance, what other kinds of financial relief are hoteliers pursuing?
Tabor: "They’re asking about what kind of relief they’ll get from their mortgage partners. And we’re talking to utility folks. I don’t think there will be relief from eventually having to pay for utilities, but no one’s going to get their lights shut off right now because they didn’t pay their bills."

HNN: What other factors come into play behind the decision to remain open or to temporarily close?
Tabor: “You look at everything you’ve got. A forecast is something you have to do, and, based on that, make that decision whether you stay open or closed. You’ve also got to figure out what ramping up costs. If you shutter rooms, dust builds up whether there’s anyone in there or not. So you’ve got to prepare rooms for the guests as they start arriving. I don’t think it’s going to be, ‘Turn on the faucet, here we go.’”

HNN: So when do you think Memphis hotel demand will start ramping up again?
Tabor: "Remember that first week of March, when we were told to avoid groups of 500 or more, and then that tapered to 100, then to 10? You’ll see that kind of return through the summer months. We had the Memphis in May International Festival moved to September and October, and there have been golf tournaments that were moved. If that all takes place and the all-clear hits, we’ll be busy through Christmas. But some of these hotels and restaurant companies that we do business with aren’t going to make it. It’s going to be a little different looking when we get out of this thing."

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