Industry leaders discuss COVID-19 solutions

NEW YORK— NEXT Events, in partnership with Hotel Business and InspireDesign, has launched a virtual conference platform—NEXT Virtual. The platform kicked off with its inaugural session, “Hospitality in the Time of Coronavirus: Solutions for Our Industry,” where industry leaders gathered online to discuss the current economic and social climate.

Moderated by Hotel Business/InspireDesign Editor-in-Chief Christina Trauthwein, the conference began with expert analysis and financial forecasts.

Jamie Lane, senior director, economics and forecasting, CBRE Hotels Americas, said that while CBRE initially called for a 37% decline in RevPAR, that’s now being adjusted further downward to 46% for the year.

As for occupancy, it hit 20% mid-March, but Lane noted that the numbers vary greatly depending on chain scale and location type with luxury and upper-upscale below 10%.

Lane said that properties at the lower-end of the chain scale—economy and midscale—will see higher occupancy rates because they can accommodate more essential travel needs, housing people on a short-term basis, medical workers and those in quarantine.

“Initially, we were expecting a relatively V-shaped recovery; now, it’s going to be a more U-shaped or a Nike tick. We’ll be on the road to recovery once we get a few weeks past the number of cases peaking,” Lane said.

This means a more prolonged time at the bottom in Q2, but Lane is optimistic that things will pick up later this year.

“We do expect the recovery to take hold strongly in the back half of Q3 moving into Q4,” he said. “2021 should be a good year for the hotel industry in terms of gains in occupancy and pulling back the declines in rates that we’re going to realize in 2020.”

Lane said major cities that house group corporate and international travelers will see the greatest impact as their demand dries up through Q2. He also noted that the industry will see longer times to recover, as restrictions on inbound international travel and group meetings take longer than domestic leisure travel to start rebounding.

“That’s where we expect to see the first green shoots of recovery—around domestic leisure and drive-to markets,” Lane said.

Part of the recovery is the CARES Act, which Chip Rogers, president/CEO, American Hotel & Lodging Association (AHLA), calls a “lifeline package.”

“The idea that [Congress] passed the largest spending measure in the history of the world in about six days is pretty amazing, and I give them a lot of credit for it,” Rogers said. “Post-9/11, post-Great Recession, we saw numbers fall into the 50s for occupancy, but to have them fall into the 20s and many of your major cities having them into the single digits, having thousands of hotels shut their doors, we’ve never seen anything like this.”

Rogers explained that the CARES Act is critical because it honors the affiliation rule, meaning that individual hotels can qualify as a single business unit.

“If you require that all these individual hotels are tied into the single ownership unit, then you can quickly go above the 500 [employees]. That would have meant that hundreds of thousands of hotel employees who will receive benefits through this Act would not have because their employer would have been too large. So, we advocated from the beginning to make sure that the individual business unit, the hotel itself, would become eligible for the loans,” Rogers explained.

He added that this consideration—a bill that would have covered about 60% of the hotel industry and the employees—took it to about 98-99% of the industry and employees.

“An individual hotel can borrow up to a maximum of $10 million, or 2.5 times your average monthly payroll,” Rogers said. “If you use those resources, the monies you receive on that loan, for the purposes of payroll, for service on your debt, then that money will be forgiven and act as a grant, not a loan.”

Although a lifeline, Rogers acknowledged that it’s only the first step toward recovery and getting the industry’s numbers similar to where they were at the start of the year.

“While we are extremely appreciative of what came through the CARES Act and, in fact, thousands of hotels would go out of business without it, there will probably need to be some changes to the act as we see how it plays out,” Rogers said.

Rogers is calling for a change to the 250% of payroll to be spent over eight weeks from the date hoteliers receive the loan, which he believes isn’t enough to both keep employees and service debt. Rogers would like that number raised to 400%, which was introduced in the original bill.

“For an average hotel, your debt service and your payroll are going to be similar,” Rogers noted. “If the owner loses his or her property, there won’t be jobs for these people to go back to. We always need to keep that in mind—debt needs to be serviced.”

Secondly, Rogers is looking for a change to the loan forgiveness timeline. The formula for the loan forgiveness is the number of employees a company has on FTE on Feb. 15 compared to the number of employees it has on FTE June 30. If the company goes down on FTE, then a portion of the loan will not be forgiven, and it will be treated as a loan.

“We believe that extending that June 30 date out closer to the end of the year makes a lot of sense because no one reasonably expects that the hospitality industry is going to be back up on its feet by June 30 at 100%,” Rogers said.

The June 30 date is just an estimation, however, and one of the biggest problems for all industries—not just hospitality—is how uncertain this timeline is.

Jim Butler, partner, chairman, global hospitality group, JMBM, suggested planning for all scenarios.

“A hotel owner has to look at various relationships—with the lender, with the franchisor, with the operator and with employees—all of those have legal implications,” Butler said. “If you’re looking at closing down your hotel, there are significant labor implications, plant closing requirements; while some of the federal plant closing law standards had been relieved, the notifications have not, so there are labor and employment issues you need to go through. If you have unions, you need to deal with the unions. So, you’re trying to manage your cash flow, you’re trying to control hemorrhaging, but you also need to do this in an organized way.”

Butler recommended that hotel owners utilize free online resources during this time like handbooks and checklists, and also perform a comprehensive situation analysis.

“Look at the borrower, the property, the cash flow, the operator, the manager; different factors will suggest different scenarios. Be proactive. As an owner or borrower, you want to go to your lender and show that you are a responsible borrower,” Butler said.

Harry Spirides, president, Spirides Hospitality Finance Company, presented other options for mitigating losses.

“Ask your lender to modify your loan terms and to make them more favorable, defer loan payments three to six months, bring in a new partner to infuse cash or file for a Chapter 11 reorganization of your debt. The CARES Act made it cheaper and quicker to file Chapter 11,” Spirides said.

Spirides also suggested leasing hotels out to the government or hospitals for emergency use or asking a hotel franchise or management company to reduce fees.

Leasing out hotels comes with its own set of implications, especially with the possibility of bringing in those infected with COVID-19.

Butler has been working with some clients who are apprehensive about this, worrying if bringing in infected people would tarnish a hotel’s reputation.

“In several instances, we’ve been able to negotiate with the government body leasing the property that they will disinfect and certify that the property doesn’t have COVID. In one instance, they took 100% of the rooms guaranteed during the lease period and paid the ADR the hotel had been experiencing over the past year. On the higher end, they’re offering only a portion of the ADR,” Butler said. However, he noted these agreements are negotiable and worth considering.

Thousands of hotels are on board, and AHLA’s Hospitality for Hope—an initiative that bonds the hotel industry with local, state and federal governments to help employees and communities across the country during this pandemic—is proof of that.

According to Rogers, 15,000 hotels are making their properties available for these uses and AHLA is planning on expanding the program.

“If you capture what’s happening here—the hotel industry stepping up—you could make the argument that in a time of need, our hotels met that need for our community by allowing it to be used for these purposes. You could potentially come out of this looking better than that original concern, that stigma,” Rogers said.

Hotels have the opportunity to serve not only the communities they’re a part of but also, their community of guests.

“If you are staying open with limited staff as safe as possible, you can create a package that allows guests to safely have a getaway and stay quarantined. The amenities may be shut down, but still, that idea of a vacation and getting away can lighten the mood and bring revenue in,” said Melissa DiGianfilippo, co-founder/president of public relations, Serendipit Consulting.

DiGianfilippo also recommended pre-selling for the future and keeping guests engaged virtually through cooking classes, spa demos and property tours, or creating postcard-style filters and frames on social media.

“This is the time to get creative. If you stop marketing altogether, you aren’t going to come out of this successfully,” DiGianfilippo said.

She added, “Share positive press. People are watching and looking for positive stories.”

More than ever, people are clinging to positivity given the uncertain climate of not just hospitality, but of the world. But, one thing remains clear: Like hospitality always has, it will prevail.

“Travel is resilient,” Lane concluded. “After the SARS epidemic in China where hotels were shut down, after travel restrictions were lifted, it took three months and hotels were essentially back to full. It’s something we’re all going to get through together, and travel will come back stronger than ever; it just might take some time.”