Trust CEO: Hotel Operators Not 'Receiving Any Income For The Remainder Of Year Of Any Kind'
Trust Hospitality CEO Richard Millard said the coronavirus has eliminated his company's revenue. Trust operates 31 boutique hotels, and as an operator, he said 2021 might be the next time his company takes in revenue.
"I don’t see most of us that operate hotels, certainly as a pure operator, are receiving any income for the remainder of the year of any kind," he said on a Bisnow webinar last week. "I hate to be the bearer of bad news, but I think that's what it is."
His team closed all but two of its hotels — one near a hospital in New York and one near the airport in Miami. It laid off essentially all of its hotel and corporate staff, he said. It had five other hotels on the verge of opening, including one next to Orlando's convention center, he said.
"I think we got maybe another 30 days of survival," Millard said. "Then I'm not sure what happens."
Millard said even into March, his company was unaware of the possible risks of the novel coronavirus.
"We were completely unprepared, and I'm not sure how prepared anybody else was," Millard said. "I mean, the fact that maybe 10 days before we shut everything down, we had no clue that this was going to happen."
"One thing that has gone away from my life is stress," he quipped. "There's no stress, because we have no customers."
Driftwood Capital, a Coral Gables, Florida-based hotel investor and manager with 69 assets from Florida to Utah, is acutely experiencing the juxtaposition of pain and opportunity found in today's hotel real estate market.
Driftwood CEO Carlos Rodriguez Sr., who joined Millard on the webinar alongside hotelier Keith Menin and Straticon CEO Jeff Hardin, said his company's operations side had to lay off more than 3,000 workers in response to the coronavirus pandemic. But for its investment arm, he said he expects "there will be an avalanche of transactions" in the hospitality space six to 12 months from now, when the economic damage from the coronavirus pandemic shakes out and the outlook becomes more clear.
"On the new fund side, it actually caught us in a very good moment because basically we just finished launching and are in the process of launching a third fund," Rodriguez said. "And now we have a lot of money to be able to come in as white knights and assist people in trouble, inject capital as preferred shares, as preferred equity, or inject more as lending, or help in joint ventures, to those that are struggling and that need capital assistance."
Driftwood was been actively seeking properties in the $30M to $150M range as of January, and issuing $3M to $50M loans through its mezzanine lending division.
Rodriguez said based on what he's seeing in the market, buyers right now are expecting a 30% to 40% discount on assets, but sellers only want to give about 20% off.
Millard was less willing to make predictions because of so many unknowns related to the cornavirus.
"I'm not quite sure that anybody knows what a good deal is right now, because we don't know what the operating results are going to be" in the next 18 months, Millard said.
Although a lot of capital is sitting on the sidelines, many would-be buyers already own a lot of real estate, which could run into trouble if the virus persists, Millard said.
"So I'm not sure what really happens is going to be an avalanche, but it all depends on what happens to the world," he said.
Menin said that he was focused on stabilizing existing projects. Construction is proceeding on a restaurant and bar, Bodega, in Fort Lauderdale, and he has 12 sales people woking from home, still pushing units at Natiivo, a condo/homesharing tower in Miami.
"Believe it or not, we've been selling tremendously well through [the coronavirus]," he said.
As for the market, Menin said, "real estate's worth its cash flow," so he isn't surprised that prices are down right now. In the next few months, he said it will be extra difficult to finance, evaluate and appraise any sales.
He said that if people own good real estate, they should try to hold on and not panic. Buyers should pounce if they have a motivated seller.
"If you don't, then it's still the same it was the day before coronavirus," Menin said.