What Hotel Owners Are Saying

Last week Colliers International had a private webinar for its clients focused on the state of the hotel industry.

The numbers of are absolutely devastating. There is no comparable period in history.

During SARS in 2003, the occupancy fell to 42%. We saw a 10.9% reduction in Revenue Per Available Room (REVPAR)  during the financial crisis.

In the aftermath of the 2001 terrorist attacks REVPAR fell 2%

Most hotel groups started to prepare in the first week of March, a full 5 weeks after the China lockdown.

Many hotel groups had already started planning for a business slowdown when occupancies had started to fall in Q4. But all of the planning had focused on a reduction along the lines of what had been observed in previous economic downturns.

Many of the hotel groups had started to communicate with lenders in the past two weeks to keep them up to date on the state of their business.

Majority of institutions have been providing 3-6 months of interest only concessions. Many of the lenders are offering interest only relief and allowing principal payments to be deferred.

One perspective when it comes to hotel valuation is that many hotels will lose a year of net income. At current cap rates, a complete loss of a year of income could translate into a 5% reduction in valuation.

There is a lot of pent up demand for events. Weddings scheduled for the Spring are being rescheduled for the fall.

Hotel rates are not falling in today’s environment. The reason for that is that dropping rate won’t stimulate demand, so there’s no reason to drop rate.

The combination of the property tax deferrals, loan principal deferral, government wage subsidies, some amount of workforce reduction, capital project deferrals, the hotel owners who were on the panel seemed to feel that they can weather this storm for a period of time. However, they will need additional government help.

Hotels are reaching out to health care workers who need alternate accommodations to protect their families from possible infection.

Some hotels are also reaching out to hospitals to provide accommodations to patients as overflow for hospitals

Some scattered demand exists for airline crews and for repatriation quarantines.

The short term is focused on cost containment, preservation of capital and maintaining liquidity.

The hotel owners on the panel see a lot of pent up demand as witnessed by the number of events that were scheduled and are being rescheduled for the fall. That means the chance for a V-shaped recovery in travel is there. Most of the hotel owners had run several scenarios ranging from a fast recovery after a couple of months. Most of the worst case scenarios don’t see a recovery any later than the fall. All the major operators on the panel were ensuring they had the liquidity to survive until the fall.

The new financial model for 2020 assumes 50% occupancy for the year and a daily rate 15-20% lower than historical. That assumes a 0% occupancy for the next 60-90 days.