So I've read a few articles about hotels having a difficult time and was wondering what sort of options they have going forward. Could they do something like convert a percentage of rooms into service apartment style units to weather the storm?
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They sell points to credit card companies for cash to fund operation cost until the crisis is over
That's true for the Franchisor C-Corp but the owner of the hotels themselves or REITs themselves don't sell points to credit card companies.
I think long term not much will change but they will probably be considered a little riskier so I think that will affect pricing a bit on the investment side of things. Op ex will probably increase too as people will most likely want the rooms to have a deeper clean in between turn overs.
Hotel guy here at an institutional shop.
We have been hard with 90% of our properties closed. We have basically been projecting 2020 to be a wash and recovery returning to 2019 not until 2023. When states decide to reopen means nothing to us in a sense. They can open all they want but will there actually be any demand?
I think there’s three sides of the fence in looking at this from a travel perspective..on one side, you have your people who still have their jobs and financially stable who will be eager to travel and get out once the lockdowns are lifted. In the middle, you have your people who still have their jobs and are financially stable, but will be terrified of going anywhere once lockdowns are lifted, maybe even until a vaccine is out. And then on the final side you have, unfortunately, your people who now not financially stable and lost their jobs who will most certainly not be taking their family of four to Disney World or to The Bahamas, whenever those opportunities are finally available. Weighing the percent of each side is impossible to predict. Forecasts can’t just mirror those of a recession. This is entirely different.
It is a tough road ahead for sure, but I think we will be ok in the long term.
What occupancy level is breakeven on a property level?
~20%-30%
How does your shop stay financially afloat for the years to come? What’s the game plan?
I am at a large institutional shop that invests across every asset class. I only focus on Hotels but we are well capitalized to ride the storm and will even be starting to look at opportunities or to be rescue capital.
I can chime in here to. We own several limited service hotels. I agree with the above comment on a recovery will take 3 years at least. Just got off a conference call with a big time broker of one of the largest hotel investment sales divisions. He stated we should expect 50% of operators to go under. These will primarily be under Hilton and Marriott flags. The other 50% that survive will be your run of the mill Motel 6s and various other budget and midscale brands (Less than $100 ADR). For our portfolio, our break even is 30%, but thats with reduced staffing and deferred mortgage. So just primarily on GOP we can get by on 30% as we shut off F&B components, reduced utilities, payroll, etc. However, this is still negative NOI across the board once you factor in debt. This will be a terrible recovery for hotels. Right now the banks and special servicers are willing to work with you, but in 5 months, they won't have the patience. You will see several foreclosures occurring around beginning of Q4. Plus we will enter the winter season, which the worst part of the year for the majority of hotels. I read somewhere that people are going to travel heavily once the stay at homes are lifted, but the big difference this time will be that they will do more day trips rather than trips that require use of airlines and hotels. There is no doubt though that the industry will fundamentally change forever. Lol I have even some borrower's asking for 18 month loan deferment from CMBS servicers.
This makes sense. I'm surprised lenders are willing to work with most folks right now. The industry is so over-saturated that maybe all this coronavirus shit is a good thing, put the plug in the flow of new product.
Lol whats the alternative from the lender's perspective? Taking blood from a stone doesn't have any real upside unless you're a true loan to own shop that has the capabilities to manage the asset, and even then, taking over an asset that is non-performing and may not perform for...a couple years? is not exactly an appealing scenario.
What makes you think the industry will fundamentally change forever? You don't think in 2-3 years from now, people will want to stay in hotels and go on vacations?
3 years to achieve same Revpar but I mean change from how F&B and housekeeping will be handled. Youll also see a shift of investment towards budget brands as upscale properties take a hit. People will travel for sure but the hotel industry has so many moving pieces. One area in particular will benefit while another might become obsolete. Too early to tell. Hell these exterior motels that you see on highways are considered to be more preferred now since they are more open compared to those with closed corridors. This is a complete 180 since exterior properties were dying out. I cant tell you the exact changes because truth is nobody knows but events like this can alter an industry significantly.
can you explain how your breakeven is 30% ? what’s the math on that?
Not sure what you need by math. Dont have a property level number off the top of my head, but see here:
Lets say its a 100 room hotel. At 30 rooms an ADR of $80, which is a pretty conservative number with this downturn, we are earning a total of $2,400 a day on average. 15% of this goes to Marriott. We got reduced staffing for housekeeping, which costs maybe $300 per day for three housekeepers. Then our front desk could costs about $400 a day (hourly earning of $16). Utilities are going to run about $300 a day as we shut off floors, AC units, other areas, etc. We got no F&B. Supplies probably running a $75 a day. We have one manager on payroll overseeing operations still, rest of marketing and other divisions are furloughed or let go. This pay averages around $250 a day. Plus maintenance is at $200 a day for one person to show up and make sure everything is in good condition. Then remaining $500 plus is allocated to everything else such as repairs and maintenance, internet, cable, other expenses, etc. Actually my number is conservative could probably take occupancy down to 25% and still would be good. We actually have the manager working shifts right now so the hourly for front desk associates would be less. This is purely NOI and not factoring in debt. We're all running this bare bones to survive.
you can still bang in the stairwells right?
Less likely to be caught.
Whether or not that's seen as a benefit is based on your rationale for stairway sex.
Very very helpful post for an equity guy trying to decide if hotel c-corps and REITs have value or are value traps. In my eyes, only a couple lodging REITs currently have the balance sheets in good enough shape that I am confident that they will get through (without further leverage) and c-corps aren't cheap enough yet for a 3 yr recovery to '19 RevPAR levels. Choice could be interesting.
what is the purpose of banks foreclosing on these assets soon if they won't be able to get many off their books? get as much money as they can on the dollar? Will there be buyers once the bank takes back to asset?
Problem is going to be financing. I know lots of guys with capital that specialize in hotels looking for deals. However theyre basing this on higher LTVs. I know one regional lender that is giving guidance that LTVs will not push 60% for them on hotels for the next 2 years. By contrast they did alot of 70-75% before Covid.
Exactly. Not sure that I want to deal with the risk involved with a lodging REIT that had 3-5x debt to EBITDA pre crisis which will clearly be significantly higher coming out of this. Meanwhile, a couple hotel REITs were in 1-2x debt/ebitda range pre-covid with good amounts of cash on-hand. Lenders have been very accommodating thus far, but if recovery is 3 years the valuation math looks less attractive
Hi, Yes, its actually a critical time for them and i think they can move to your idea of service apartments for a while until their economy kick backs to normal. With this recession processing ahead am really worried about their hotel property tax bills!
Booking online directly is the best thing you can do. Never trust third-party websites. I have recently stayed at a few accommodation hotels near me, and they all offered the option of booking them online directly from their websites. Now that hotel prices have rapidly increased, hotels are fighting back with special rate discounts, so long as guests book directly with the hotel. For example, two of my favorite hotels have already rolled out direct booking discounts for their loyalty program members. Other benefits include free Wi-Fi, room preferences, and better customer service.
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