To my fellow Hotel friends

Analyst 2 in RE - Comm

Hang in there. We are in this together. It has hit rock bottom for us. Thankfully I am at a large capitalized shop. Capital calls incoming already.

It's brutal right now. Would love to hear from other hospitality guys.

Comments (46)

  • VP in RE - Comm
Mar 19, 2020

Got quite a few in the portfolio. Its looking pretty bad. Worse than the financial crisis by far. For every month this continues, it will take a year to rebound.

    • 1
  • Analyst 2 in RE - Comm
Mar 19, 2020

Agreed.

My boss who has worked through 9/11 and 08/09 has said this takes the cake.

Chris Nassetta with a statement other day saying how Hilton has never closed a hotel aside from major renovations or demolition. They have plans to close over 50%. This is just a movie right now.

Mar 20, 2020

Would you say it's a good idea to stay away from Hotel REITs even though they are a bargain rn? Most have fallen 50-75% at this point. I don't mind holding 1-1.5 years.

Mar 20, 2020

Tough to say. I think you are going to see a lot of hospitality firms wiped out if this things carries into months and not just weeks (which at this point seems to be the best bet). Now hotel REIT's have better access to capital then a lot of these firms, but no company can survive little to zero revenue for an extended period of time. I wouldn't be surprised if a decent number of these REIT's are picked up by the larger REPE's and taken private.

    • 1
  • Associate 2 in RE - Comm
Mar 19, 2020

One of our borrowers is a boutique hotel group that has told us they're planning to temporarily close all their outlets and lay off the majority of staff (both associates and corporate). Absolutely brutal.

Mar 19, 2020

I feel bad for the boutique hotels. I would guess lots of them would go bankrupt during this time.

Mar 19, 2020

Why would boutiques be getting hit harder than flags right now?

Mar 20, 2020

Generally, less institutional ownership, more mom & pop management = less liquidity and capital to ride out the storm. Unclear as well what Trump's bailout for the hotel corps will look like and if that trickles down to individual flagged hotels.

    • 1
Funniest
Mar 19, 2020

My last 3 months:
- graduate MSRE program in december
- take trip to europe, ending in italy
- italy gets first COVID-19 case two weeks later
- come back and accept a position in acquisitions at a hospitality firm
- week later WHO announces this is a pandemic and Trump declares a state of emergency
- hotel industry takes the biggest downfall it's ever seen

hell of an intro to the business

    • 19
Mar 25, 2020

If you and your firm make it through this (and I say that lightly as I know nothing about your firm) you will be better for it. You're going to be exposed to things so early in your career that some head acquisitions guys probably haven't seen yet. You can learn a LOT.

    • 2
Mar 20, 2020

How will this impact hotel investments in the future? Will pricing always be lower now aka always be traded at higher cap rates since we've all witnessed the risk adjusted returns for the asset class?

I'm sure many investors are scarred for life

Mar 20, 2020

I can only speak for me personally, but in the future I will not be buying hotels unless I can get a financing contingency. It was eye opening to see how quickly the debt markets fled the asset class. In a matter of five days it went from no financing problems at all to you could not get a loan. I'm probably going to be much more conservative with how I underwrite hotels in the future. Once I can no longer buy hotels with that type of underwriting, then you know that we are long in the tooth for the cycle and you shouldn't be buying hotels anyways.

Mar 25, 2020

It's a rare black swan event though right? People have been saying we're underprepared for this kind of things since the 60s and it took 60 years for it to actually happen

I guess what I'm saying is this is probably a once every 100 years or so type thing and there aren't a whole lot of catastrophes that hit hotels similarly

    • 1
Mar 21, 2020

I wouldn't be surprised if the major hotel flags increase their key money requirements, and get more aggressive with upfront deposits for future PIP. Lastly every franchise will be required to carry business interruption insurance.

Mar 21, 2020

Most interruption policies don't cover this kind of thing.

    • 1
Most Helpful
Mar 20, 2020

You have to understand why this will be worse. Buyers were compressing cap rates further on hotels as they got pushed out of multifamily and other lower cap investments. This caused a rush to hotels, which made cap rates less attractive for the amount of risk. This is deadly now as investors never fully priced in this risk. They were probably expecting risk as maybe seeing flat ADR and occupancy or maybe a 2% decline, not a 80% decline. If this lasts for two months, I think the bigger shops will have to sell for fire sale prices to survive.

    • 5
Mar 20, 2020
teddythebear:

You have to understand why this will be worse. Buyers were compressing cap rates further on hotels as they got pushed out of multifamily and other lower cap investments. This caused a rush to hotels, which made cap rates less attractive for the amount of risk. This is deadly now as investors never fully priced in this risk. They were probably expecting risk as maybe seeing flat ADR and occupancy or maybe a 2% decline, not a 80% decline. If this lasts for two months, I think the bigger shops will have to sell for fire sale prices to survive.

Agreed - hotels have always been yield plays or ego plays (ie: Trump), but due to the elongation of this cycle you had plenty of traditional real estate investors (office, multifamily, retail, industrial) pursue hotels due to yield. To your point, this compressed cap rates. The shakeout in hotel will be brutal and feel for the entire industry.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Mar 22, 2020

Well said.

The risk premium associated with Hotels will be dramatic. Prices will suffer, no one knows when the next pandemic will occur. This is only an example of how quickly it can spread, and havoc it can have on an economy.

Hopefully

Mar 22, 2020

Take a look at the marriot 10-k. 250 million in cash, almost a bil in current portion of 10 bil in debt. 1 bil accrued payroll.

Mar 22, 2020

And they owe us 3 bil worth of reward points. Say bon voyage to your bonvoy points

Mar 25, 2020

as a consultant, this makes me very sad

i have like 600k lol

Mar 22, 2020

Which hotels do you guys expect to be demolished through this pandemic?

Mar 22, 2020

I work for a very highly capitalized family office that focuses on RE development, with a large portion of our holdings in hotels. Right now we've been having calls about looking for distressed hotels to buy, as well as about building a large hospitality REIT portfolio. We expect the entire sector to be really rough for awhile, but we like 50 year holds, so we are willing to wait it all out.

  • VP in RE - Comm
Mar 22, 2020

Relax young grasshopper. Yes distressed deals may happen but not if all the lenders defer debt service for sometime.

Mar 22, 2020

Yeah it isn't as much about finding the properties we may be interested in acquiring right now, as it is looking for owners that are highly levered, that may need an out later in the year.

Mar 24, 2020

I work in hotel asset management and consulting. One of our hotels, in the CBD of a major city, dropped its March total revenue forecast from $1.8M on 3/1 to $395K on 3/18. The April occupancy on the books is at 19% and losing a half a point a day. Budgeted April occupancy is ~75%.

I was on a call the other day with the President of a well known management company. He said about half of the hotels in his portfolio will temporarily close.

Mar 24, 2020

delete

Array

Mar 24, 2020

Last week I wasn't as worried, but I'm starting to think I'll be layed off if firings begin, mainly because I was the last in on my team. This will really come down to the going concern of the company - as a newer luxury brand the long term sentiment will be key for my team (development) as many of our projects are years away from opening. We are still in multiple active discussions, particularly outside of the US. Within the US, things are far more quiet/dead. Our occupancy in major cities is single digits, samer as all other luxury brands. From my CEOs position I see him asking the question - if we are to keep going, do I need the entire dev team to keep things moving or will half of it suffice in the near term? Time will tell. Trump talk of ending shutdown earlier than has been initally suggested might be the final straw that determines the fate for many of us - I feel like our leadership, and likely most of hotel leadership, is in a wait and see mode for the next week, maybe two, before making such major decisions. The best silver lining for us younger folks on the board - we'll never have to hear the older guys hang the "you haven't even been through a downturn" cloud over us ever again. Hang in there - either way will be a hell of a battle story for all of us.

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  • Analyst 3+ in RE - Comm
Mar 24, 2020

good luck man...wishing the best, many on the same boat in regards to sentiment of layoffs...you always gave the best insight into the hotel asset class in this forum. It was good hearing from you

what would your plan if you were to be fired? any tips? how do you navigate in this world unemployed with many jobs not hiring?

Mar 25, 2020

As much as I would advocate Trump lifting the shutdown earlier than expected there will still be plenty of companies and individuals that suspend travel through the end of summer. While, I think Trump lifting the shutdown will have a meaningful impact on RevPAR / occupancy, I still see RevPAR / occupancy down 25 - 50%.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

    • 1
Mar 25, 2020

Trump lifting the shutdown? What? Most of the business and community restrictions have been implemented by Governors and Cities. You think NY and CA will lift shelter-in-place because Trump is flailing to prevent a economic calamity and will put more folks' lives at risk? No way

    • 1
Mar 25, 2020

I wasn't implying that would correct anything back to where it was. Makes a very big difference to people's fates on the payroll if there is any money coming, no matter how little, vs none at all. Any sentiment that hints at a reason to stay open is a reason we might have stayed open . At this point I found out we are closing the few locations we have until further notice. Not expecting anything good out of that in my case.

Mar 25, 2020

I was just thinking about the "you haven't even been through a downturn" comment today as well. I hated being in a discussion with someone, felt like I was making good and reasonable points, only to have an older coworker pull out the recession trump card. Always felt lazy and ignorant to me. Funny how 3-4 weeks ago when I, along with some other younger people at the firm, were very concerned about the coronavirus and thought it would lead to a recession, and yet the majority of our IC members were saying it's just the flu and the risk of a recession was still low. Go figure.

Mar 25, 2020

It will take more than a year to bounce back to normal!

Mar 25, 2020

Would be a good time to buy hotels at a >15cap and rehab into multifamily, sell for a <6cap in 6 months.

    • 1
Mar 25, 2020

I've been thinking about this strategy as well - although for most hotels scale and room configurations make it difficult. Urban hotels could be the play, however.

Mar 25, 2020

In Canada, I'm seeing a lot of properties close down just to minimize expenses. At a certain point, operationally it doesn't make sense to keep the property open because of the high fixed costs and utilities.

For the smaller players at least, many of the credit unions are deferring loan payments (interest and principal). Ours has given us a 3 month deferral right out the gates and we're currently looking at a 6 month deferral + potential operating line (for cash flow purposes). The question remains if we tack on the operating line and increase our leverage to stay afloat in the short term, how do we service the debt going forward if occupancy is low when travel commences?

We just invested in a limited service hotel in Alberta (heavy O&G) so we are fucked....

Does anyone truly believe the "pent-up demand" is real? I'm on the fence.

    • 1
May 15, 2020

I do believe in pent up demand. I'm in desperate need of a haircut. I'm willing to pay double or triple my normal cost.
I do not believe the pent up demand theory applies travel industry unless your uber rich or not in touch with reality.

May 15, 2020

Would like to hear if there is any update as of May 15th?

May 15, 2020
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