Montgomery County Is Especially Vulnerable To Hospitality's Sudden Collapse
Montgomery County, Maryland, a jurisdiction that has already faced fiscal challenges in recent years, appears to be particularly exposed to the crisis the hotel industry is facing.
The county contains the corporate headquarters for at least a dozen major hotel companies, and its largest private sector employer, Marriott International, has furloughed thousands of its employees in the county.
Marriott employs 5,500 people in the county across its hotels and its corporate headquarters in Bethesda, making it the largest non-government employer, according to the Maryland Department of Commerce. A Marriott spokesperson confirmed to The Wall Street Journal last month the company is furloughing about two-thirds of the 4,000 corporate employees at its Bethesda headquarters.
The hotel giant broke ground in 2018 on a new corporate headquarters and adjacent hotel in Downtown Bethesda, a $600M development.
The company released new performance data Tuesday, revealing its occupancy levels in North America are currently around 10% and 870 of its North American hotels are temporarily closed. The company said it expects to report its revenue per available room in March declined by 60% worldwide and 57% in North America.
In addition to its largest private sector employer, Montgomery County also serves as the headquarters of several other major hotel companies. Choice Hotels in 2013 moved its headquarters and more than 400 corporate employees to Rockville Town Square. Host Hotels & Resorts in 2017 signed a 55K SF lease at JBG Smith's new development at 4747 Bethesda Ave. Pebblebrook Hotel Trust, which in 2018 acquired Bethesda-based LaSalle Hotel Properties, also signed a lease at 4747 Bethesda Ave. last year.
RLJ Lodging Trust is headquartered at 3 Bethesda Metro Center, and Diamondrock Hospitality Co. is headquartered at 2 Bethesda Metro Center. Condor Hospitality Trust, PM Hotel Group, Capitol Hotel Group, Hospitality Partners, B.F. Saul Hospitality Group and Donohoe Hospitality are also headquartered in Montgomery County.
"We recognize that we have an aggregation of folks in the hospitality industry, so we're very aware and we are very supportive and doing what we can to help," Montgomery County Economic Development Corp. CEO Ben Wu said. "After the stay-at-home order is lifted, what we are anticipating is a slow, incremental evolution back to a state of normalcy, so that's going to be especially difficult for the hospitality industry."
Stonebridge principal Doug Firstenberg, who broke ground last year on a $350M Downtown Bethesda project featuring an AC Hotel by Marriott and a spec office building, said he thinks the market may feel some short-term pain but he is confident it will recover.
"It’s obviously a concern, but all of these [hotel] companies are extremely well capitalized and extremely well run and leaders in their industry, so certainly they’ve had to do painful things to downsize very quickly, but I do see those strong companies being able to lead the turnaround,” Firstenberg said. “I think there could be some short-term issues, but long-term you’re looking at very good companies that will work through these issues.”
Before the coronavirus and the economic crisis began, Montgomery County was already facing economic difficulties. One of the county's previous largest employers, Discovery Communications, in 2018 announced plans to move its headquarters and its 1,300 corporate staff out of Silver Spring to New York. Then-County Executive Ike Leggett described the move as a "gut punch."
A report from a group of business executives released in January 2019 concluded the county was "marching toward fiscal peril" in part because of a depressed commercial tax base. Developers including Foulger-Pratt CEO Cameron Pratt have said Montgomery County is falling behind Northern Virginia in attracting corporate officer users. Montgomery County Council member Hans Reimer said at a Bisnow event last year the lack of job growth in the county was "becoming a crisis."
The county's fiscal situation will undoubtedly be made worse by the pandemic, which is lowering tax revenues from the hospitality industry, the restaurant industry and other businesses.
"The revenue we're losing from the hospitality industry, the leisure industry and tourism is quite significant," Wu said.
While Montgomery County is experiencing challenges from the hospitality sector, multiple stakeholders noted that it is also the hub for another industry that is poised to perform much better during the crisis: life sciences.
Montgomery County's largest overall employer is the National Institutes of Health, based in Bethesda and it has a cluster of life sciences and biotech companies on the I-270 corridor that work with the agency and benefit from federal spending on public health. The headquarters of the Food and Drug Administration, which has a key role in drug and vaccine approvals, is in White Oak.
Montgomery County is not alone in the region as a hub for hospitality corporate headquarters. Hilton Worldwide is headquartered in McLean, and it employs more than 1,000 people in the county, according to the Fairfax County Economic Development Authority's 2019 list of largest employers. The county is also home to the headquarters of Park Hotels & Resorts, Crescent Hotels & Resorts and Crestline Hotels & Resorts.
"Yes, we may be more impacted because we have a few of their headquarters here, and we do, and will feel that too because I'm sure it's going to affect the technology and administration staff, but the reality is all markets across the world are going to be impacted by this," Fairfax County Economic Development Authority CEO Victor Hoskins said of the hospitality industry.