Speakers during the online Southern Lodging Summit discussed their outlook for new hotel development, investment in distressed assets, and design and operational changes looming for hotels.
REPORT FROM THE U.S.—The fourth quarter of 2020 will reveal much about how hoteliers act in a continued state of uncertainty.
Participants on the “Visionary viewpoints: Crisis leadership” panel as part of the online 2020 Southern Lodging Summit shared their expectations for the pace of new development and lending availability along with how they’re making decisions to change operations and design.
John Koshivos, VP and managing director of development of the Southeast Region at Hilton, described his hotel development outlook as a “period of cautiousness,” split into the activity of conservative holders, opportunistic builders and aggressive buyers.
“There are those right now that are sitting back, (who are) extremely conservative,” he said. “They want to ride out the storm, see what's going to happen in their markets, manage expectations as to what they're doing today, and how business is going to look in the near-term future. You have another group that is going to potentially be opportunistic right now. There are going to be people that are saying, ‘Construction costs may be moderating or coming down a bit, land costs are coming down a bit. I know I'm not going to open this hotel for say two or three or four years.’
“… And then you've got the other group that is going to potentially be looking at distressed assets. We know there's going to be issues with loans that are out there. There might be a lot of conversion opportunities when it comes to independent hotels that might be in play for some potential branding.”
New development is going to be a tough sell to lenders, said Kristie Dickinson, EVP at CHMWarnick.
“For the most part, lenders have really exercised a great deal of flexibility and a general willingness to work with borrowers over the past six months on existing assets,” she said. “Now, that being said, I do believe that most have hit the internal pause button on the topic of development, so when it comes to debt for acquisition and also financing new development, I do think that they will be a little constrained there on the lender side.”
Properties with defaulted loans
A wave of hotel loan defaults is coming, Dickinson said.
“We're hearing of this pending tsunami, and it's reported that there's never been a higher default rate within hotels within the CMBS category, ever,” she said.
As to when that wave might happen, it could be sooner rather than later, and hotel valuations could be a major hurdle, Koshivos said.
“Some of it might start happening here in the fourth quarter. There's a little bit of that going on right now,” he said. “The question is going to be, when these assets go back to the servicer or the master servicer, when an asset is going to be taken over by another party, how's it being valued and is there going to be a gap in what the value of that hotel is versus what equity is remaining in the hotel or what that owner might have to put back into the asset?
“There's going to be a lot of back-and-forth going on, because valuations on the assets are going to be dictating what people are going to pay for the assets as they try to take them over.”
Dickinson said she expects to see some investors ready to spend on distressed assets.
“Nearly everyone we're speaking to right now, they're interested in raising funds to deploy rescue capital, so that they go out and help bail out existing properties, and they’re interested in trying to help bridge that gap and fund turnarounds,” she said.
Design and operational changes
Suzie Hall, founder and president of design firm The Cornerstone Collective, said her company has been actively working with renovation and conversion projects in design and procurement. COVID-19 has added a new layer to finding the right materials and surfaces that are easy to clean and will last long.
“We're taking the time to review the material specifications,” Hall said. “We know that a lot of the upholstery materials, especially, won't withstand the rigorous cleaning protocols that are so necessary right now. … We're just trying to bring forward some of the better solutions to our owners right now in the midst of a pandemic. I think we all were hoping we'd be mostly through it by now, and the reality is it's going to continue for some time.”
Nimisha Patel, managing partner of Vue Hotels and female director of the Western division for AAHOA, said owners and operators are making difficult decisions about how their properties’ redesign or offer previously standard amenities, such as a hot breakfast.
“Going forward, I don't see that some of these things are going to go back to what they were normally,” Patel said. “There has to be a balance in design. We want to make sure that customers are coming into our rooms, and they not only feel comfortable, but they also feel safe. … I don't think that the guests are ever going to feel safe again, because whether COVID-19 may go away but there may be something else that comes up later, so I think that this is just something that we have to think of as an industry and as consumers.”
She added the pandemic provides a unique opportunity for hoteliers to streamline their operations and closely examine their bottom lines “to make sure our money is going where it really matters.”
A new way of doing business
Hall said her designers have adjusted how they collaborate and prepare for presentations.
“I live in the state of Idaho, I was able to go into our studio and so I was the only one coming in. And I just kind of embraced it,” Hall said. “I laid out stuff all over the studio, all the samples and all the drawings, and really dove in and then shared that with the team via Zoom. … We make the best of it and try to have a little bit of just open-mindedness, because there was no other way. And then shipping things, the brands have been great about doing digital presentations versus shipping physical samples.”
The lessons learned from working remotely will be to everyone’s benefit when more normal work and travel conditions resume, Koshivos said.
“We will go back to the older way of doing things the way we did traveling a lot more, more face-to-face meetings,” he said. “But in the meantime, we ought to look at this as an opportunity to embrace some of the new technology, so that when the time comes, we can blend both parts of the old and the new and find the best path forward to communicate to explore and to advance our individual goals.”