Industry leaders share regulatory, lending challenges
Industry leaders share regulatory, lending challenges
04 MAY 2020 7:52 AM

On a recent AAHOA webinar, hotel executives discussed the challenges of lobbying for federal aid to help the industry and the obstacles of securing forbearance on CMBS loans.

REPORT FROM THE U.S.—One day, the COVID-19 pandemic will end. When it does, hoteliers want to be in the best position for a rebound.

For weeks, the American Hotel and Lodging Association and the Asian American Hotel Owners Association have partnered in lobbying efforts to secure more federal aid for hoteliers. During a webinar hosted by AAHOA Thursday, leaders of both those organizations recapped their efforts and shared their priorities for the next round of advocating for the hotel business.

Chip Rogers, president and CEO of AHLA, said while the first few relief bills passed nearly unanimously in Congress—including the CARES Act passed in March and another round of funding approved in late April—the bills to follow could be more contentious.

“What we're seeing here, unfortunately, is the politics begin to come into play, there are items and issues that are being debated in this fourth bill that frankly don't have a lot to do with recovery,” Rogers said during “Hotel owners and COVID-19: A conversation on recovery.”

Rogers said GOP Congress members are pushing for broad liability coverage for businesses, while Democratic members are advocating for vote-by-mail initiatives ahead of the 2020 general election.

“That really pushed people back into their corners, which is unfortunate because up to this point everybody's been working together more closely,” he said. “So the next round of legislation will be the most challenging.”

Cleanliness standards
AHLA recently launched Safe Stay, an initiative in partnership with 15 hotel brands intended to standardize hotel cleaning procedures industrywide. Rogers said AHLA will continue to update these guidelines.

“What we're trying to do is make sure that all the brands across the board can agree on a baseline of standards so that we don't get 10 different ways to clean a room,” Rogers said.

The Safe Stay guidelines will be easy for owners and operators to follow, and brands might leverage any cleaning procedures they add as a competitive advantage, Rogers added.

“They're all pretty much common sense, it's things like distancing in the lobby, making sure that the pool chairs—if you’re there with a group of people at a swimming pool—that there's 6 feet between you and the next group,” he said. “How often are you cleaning the elevator? Making sure that using the right alcohol-based products to clean rooms. Really basic things like that which generally follow CDC guidelines.”

Mit Shah, founder and CEO of Noble Investments, said hoteliers must leverage their position as the safest type of accommodations for guests once properties reopen and the public resumes traveling.

“While we do have social interaction in our hotels as part of the norm—I like to say people don’t necessarily like to talk one another but they just like to see each another, that’s why we’ve created these lobbies for that to take place—but from a cleanliness standard standpoint, our industry has always been very focused on all of that,” Shah said. “The traveling public needs to hear that, not just from our major brands but from our industry associations that can drag our brands together and say, ‘Even though you do this or you do that, as an industry we remain the safest form of accommodations that exists.’"

He believes that should be a competitive advantage.

“This is going to be a problem for alternative lodging universe that don’t have the same standards where you’re staying in someone’s house or someone’s room,” Shah said. “There’s going to be this interesting dynamic whereby we believe the branded lodging landscape will have a real advantage by simply stating this is what we’ve already been doing, and now here is what we’re going to continue to keep doing to make sure you feel safe.”

AAHOA President and CEO Cecil Staton said the franchising environment following the pandemic will be a bit tense.

“I think there's always a healthy tension in the franchise system in the United States between the franchisor and the franchisee,” Staton said. “Obviously, to franchisees (brand assistance) may not at times seem to be enough. But the franchisors are having to take into account their situation since they're also dealing with financial implications and COVID and trying to keep their doors open. For hoteliers, probably their two most valuable assets are one the infrastructure—the actual brick-and-mortar investment that they have in their hotels—but the other is oftentimes the flag.”

Lending and development
The panelists discussed some of the issues facing hotel owners, include hoping for loan forbearance in the CMBS marketplace and reconsidering development timelines.

“It is difficult, because it is a separate kind of entity within the securities markets that’s not regulated in the same way,” Staton said. “Therefore, when borrowers in the CMBS program, where their loans have been bundled and sold into security products through insurance companies or sold to pension funds or wherever they may be, there's really not a natural way to go and get the kind of forbearance that you can do with your local banker, perhaps where you have a strong relationship. So, we have been advocating for liquidity for this market.”

Staton added AAHOA and AHLA are lobbying Congress to ease access to forbearance for hoteliers with CMBS loans.

“I will tell you It's been frustrating from our perspective; we've done a lot of work educating because when I've talked to Congressmen, this is something they have no familiarity with, they know nothing about it,” he said. “A lot of the work we're doing is just helping people to see the potential ripple effect (of default) on the economy. … Fortunately, people are listening, but I cannot tell you that a great deal of progress has actually been made.”

Shah agreed and added hoteliers are at a huge disadvantage.

“How do you essentially resize a loan to attend debt yield six months from now when your income has been as impacted as it has? What does that look like, what does that mean?” he said. “… The small lenders usually have the most flexibility—I think we've seen that, time and time again. The larger lenders have the most capacity, so there's a balance and most people (are) balancing loans with larger lenders and smaller lenders.

“But having some of those conversations today is meaningless because those lenders themselves don't know how they're dealing with their own situation. The multifamily crisis hasn't hit yet; that will hit in a couple of months. The office crisis hasn't hit yet.”

Mehul Patel, chairman and CEO of NewcrestImage, said his company is taking a wait-and-see approach with its projects that are under development.

“Our company has bought 10 hotels under development; we have six under construction that we're going to finish,” Patel said. “But the 10 other projects we’ve put it on the shelf for foreseeable future based on today's environment. There is no telling what to do with those projects, so we just kind of put it on the side and we'll wait and see in next two to three years what we do with those projects.”

He added his company has experienced some delays in FF&E procurement, but those should be ironed out in the next two months.

“It may impact a project opening, which we're okay with that because there is no rush to open the hotel now,” Patel said. “We would be OK if it's opened in Q1 or Q2 next year because that will be in line with where we want to open now. We're just watching very carefully what we should do with our development projects.”

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