Coronavirus Has Put The Hotel Industry In A Tailspin. What Can Lenders Do To Help?
Canceled vacation plans, postponed weddings and conferences placed on indefinite hold — the coronavirus has brought the hotel industry to a screeching halt, with no clear sign of when things will return to normal again.
In January, hoteliers worried when STR and Tourism Economics downgraded its 2020 forecast for U.S. revenue per available room, or RevPAR, growth, projecting that the hotel industry’s numbers would remain flat throughout the year. Those predictions now seem positively rosy.
In late March, STR released a dramatic new forecast, projecting that RevPAR in 2020 would plummet by more than 50%.
“I don’t believe anyone thought that this crisis would impact our country to the extent that it has,” said Lori Tirado, managing director of business development at Access Point Financial, an Atlanta-based hospitality lender. “This wasn’t something the hotel industry could prepare for, and now is the time for owners to stay informed and plan for the future the best they can.”
As hotel owners scramble to stay afloat, lenders like Access Point are searching for ways to support both their clients and their businesses. Bisnow recently spoke with Tirado to learn what this means for both the future of hotels and hotel lending and how Access Point is guiding its clients during this crisis.
Bisnow: What does the recent drop in RevPAR mean for the industry?
Tirado: It’s difficult to know what that landscape will look like for the next few years. Industry analysts will need to track RevPAR for six to 12 months after the pandemic to determine the exact impact the virus will have on a long-term basis.
However, people will begin traveling again at some point and business will resume. Once that happens, the economy should rebound. It is our belief though that occupancy will remain at a reduced level for some time, out of concern of the virus returning, and any improvement in RevPAR will be driven by an eventual uptick in average daily rates.
Bisnow: How do you believe this will impact hotel lending in the short term?
Tirado: In the short term, many lenders have pulled back on funding hospitality altogether, but not all of them. Some lenders have viewed this as an opportunity to help hoteliers navigate through this hopefully short-lived cycle and are still lending. These lenders will face the challenge of putting necessary measures in place to protect not only themselves, but their clients.
One way lenders can help themselves and their clients would be to collect a one-year, upfront interest reserve. This would allow the owner time to get through the downturn and then, 12 months from now, be able to adequately cover their payments. The lender would need to fully believe in the owner’s business model, their operating experience and success in the industry, as well as their financial wherewithal.
Bisnow: What about the long-term outlook?
Tirado: Once business stabilizes, lenders will become more active, but on a more selective and conservative basis. For example, if a permanent lender was at a maximum loan-to-value ratio of 65%, that maximum might now look like 60%.
Moving forward, lenders will want to see more equity in deals and review the strength and experience of the sponsor in more detail.
Bisnow: What have your clients been asking for since the crisis has occurred?
Tirado: Clients are concerned. Their occupancy is significantly down, so they have had no choice but to lay off employees and find other ways to cut costs wherever they can. If they have debt on their property, they have been asking about loan forbearance and how we can help them through this period.
Other hoteliers are more optimistic and are already looking toward the recovery. Clients in that category are using the downtime as an opportunity to complete needed renovations and improvements while occupancies are low, in order to minimize guest disruption. This will allow them to come out on the other side with a more updated property and position them well for added revenue on the upcycle, when hoteliers will be competing more aggressively for bookings.
Bisnow: What relationship should a hotel try to cultivate with its lender in times like this?
Tirado: Communication is key. Lenders are being inundated with requests, so hoteliers should be patient but understand that they will get a response. They should also be prepared to discuss any issues openly and honestly. The more informed lenders are, the more willing they will be to provide solutions in the short-term to help clients successfully navigate through these times.
Bisnow: What advice do you have for hoteliers who are concerned about the future?
Tirado: Be resourceful and proactive. Cut expenses where you can now so that when this ends, you are better positioned to resume business as usual. Temporarily reduce your payroll expense and consider lowering your utility bills. For example, you might be able to reduce the frequency of your waste or garbage removal. With occupancy down, you can do this once a month instead of once a week.
Change your thought process around how you currently market your hotel. In the interim, it could be used in a different way. Consider talking with various government organizations like health departments, FEMA, the Red Cross or the CDC. These organizations could use hotel rooms for staff, people coming to assist the crisis or for non-critical patients or people that need to self-quarantine and do not have anywhere else to go.
Don’t just focus on the short term. Things will get better. Now is the time to be innovative and come up with ideas to implement when things start to normalize.
This feature was produced in collaboration between the Bisnow Branded Content Studio and Access Point Financial. Bisnow news staff was not involved in the production of this content.