Young hoteliers with resources could win recovery
Young hoteliers with resources could win recovery
13 AUGUST 2020 8:37 AM

A panel of second-generation hoteliers foresee a bleak future for the industry amid disruption from the pandemic, but believe they will be the ones to come out on top once the recovery begins.

REPORT FROM THE U.S.—The hotel industry was already in a tough spot before the COVID-19 pandemic made the situation much worse, according to a panel of young-professional hoteliers.

“With COVID aside, there was already the saturation issue; there was the oversupply issue; there was the too many brands coming out issue; overabundance of operators and developers; overabundance of cheap capital. When you pair all that together, we were already in a downhill slope,” Raj Patel, chief development officer at Hawkeye Hotels, said on a panel titled “A view from young professional hoteliers: Driving the future of the industry beyond COVID-19,” presented in conjunction with the Asian American Hotel Owners Association Convention.

“You tack COVID on top of it, the future is bleak,” Raj Patel said.

JR Patel, president and COO of Helix Hotels, said the winners in all of this will be the second-generation hoteliers, like himself, with “good capital reserves, not heavily levered, who are patient or prudent … (and) are willing to fight it out.”

“I think this is a contest of who can hold their breath the longest,” he said.

Raj Patel added that “the bright side is that there’s no country more resilient that the United States.”

However, Jatin Desai, managing principal, CIO/CFO at Peachtree Hotel Group, said investor appetite has shifted because of the pandemic.

“Since COVID began to spread across the country, you’ve got what was core value-add investment that’s really shifted now to look at distressed investment,” he said.

With the cost of capital being more expensive, occupancies plummeting and loan assistance from the government, Desai said Peachtree’s investors are looking to find opportunities within the current levels of distress.

JR Patel said Helix Hotels’ portfolio is doing better.

“I think we definitely saw the bottom,” he said. “(The Fourth of July) weekend was a bit of an acid test for our properties and our industry as a whole. With the number of cases rising nationwide, we’re starting to see a bit of a plateau across our portfolio, and the industry (in general) is speaking that way as well.”

In a post-COVID-19 world, he said he still expects to see flat performance with “maybe moderate growth.” He added that it’s a different world in how the industry operates and transacts.

Harshil Patel, VP of Champion Hotels, said his company, in seeking to minimize costs, has had to go back to a mom-and-pop model of operating properties.

“You’re literally watching every check being written, every invoice coming in,” he said. “Payroll is really your biggest item you can control, so we’ve really had to slim down all of our staffing and things like that.”

He added that occupancy has dropped for Champion Hotels’ extended-stay hotels, but that segment has been “pretty stable” and not as bad as its select-service hotels.

Hawkeye Hotels’ Raj Patel, said his company shock-tests its portfolio for a 30% drop in revenue when it builds and operates hotels, but “when overnight, you have an 80% to 90% drop and the bottom falls out, even if you have done every single thing right, when that day comes, you can never be prepared for it.”

Bringing back employees
Desai said the per-occupied-room cost has come down quite a bit, which has allowed Peachtree to reduce labor costs as hotels operate with less people doing more. As occupancies rise again, however, it has been hard to get people to come back to work, he said.

Some aren’t coming back because they are receiving more from unemployment benefits and some are waiting to see what happens with the virus because they don’t feel safe despite hotels taking safety precautions, he said.

“But there is that risk and it’s understandable,” he said.

Harshil Patel said it is also difficult to get housekeepers to come back because their schedules are inconsistent.

With very little occupancy during the week and then “getting slammed” on weekends, “it’s so hard to staff because a general housekeeper, they need stable pay, and if there’s days during the week where you can’t call them because you don’t have rooms rented but you’re trying to get them all in on weekends, it’s just not stable for them,” he said.

Raj Patel said Hawkeye currently has more than a dozen hotels under construction, with another 10 behind that, and is moving forward with anything underway.

He said his company is looking at the timing of projects still in the planning stages, and doesn’t plan to break ground on any new projects in 2020 “and most likely all the way through the second and third quarter of 2021.”

He said Hawkeye will go back to those projects once the recovery starts and lending comes back in a stronger way.

1 Comment

  • Mark Morris August 13, 2020 10:19 AM Reply

    These owners made some trenchant comments, however, they do not address the industry overhang. As hotels continue to accrue payables and debt service is deferred (not forgiven) there will be a significant financial hole that existing owners will have to dig out from. How do you cover all these costs in 2021 without significant debt forgiveness which is not going to happen for most owners. Legacy assets will be tough but acquiring new assets at a much lower basis with a clean slate is where these astute owners will make money.

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