REAG Hospitality Roundtable, August 2020

Roundtables are new to the UCLA Real Estate Alumni Group spurned by the desire to have small and personable conversations about what real estate practitioners are experiencing in the industry. Roundtables consist of 5-15 members who wanted to discuss with others in the industry what they were witnessing versus what was predicted for their sector. If you would to participate in our future roundtables, please contact Alex Bajc at alex@vineonbrick.com.

At our late August REAG Hospitality Roundtable, we had a candid conversation between professionals in the Hospitality industry. Pain is palpable, but there is also some good news on the horizon.

The Pain

“F&B revenue in one of our properties in May was $0”

“We have two properties in the most prominent city location. Before crisis there were at 96% occupancy and $250 ADR (Average Daily Rate) ($240 RevPAR -Revenue Per Available Room), now they are at 30% occupancy and $100 ADR ($30 RevPAR)” – 87.5 % decline in RevPAR

“We had 2 rooms occupied last night in our Tampa hotel, and those were airline contracts” 

“30% of restaurants are not going to make it”

.. and more pain to come

Industry is already looking into increasing efficiency and expecting remaining staff members to fulfill tasks that were previously done by two or more people. As we’ve seen in the previous recessions, positions lost by increased efficiency are not coming back.   

In the survey 100% of participants expect that at the end of the crisis hotels will have less rooms to offer while Airbnb will have more rooms to offer.

Remodeling

“We were about to remodel one of our hotels, but after looking at our cash flow decided to stay put until it stabilizes”.  All participants were in agreement that, even though remodeling in the time of low occupancy sounds like a great idea, when it comes to the decision to make an investment everybody will wait for the more stable look in the future. One reason is that it’s hard to make an assumption about future revenue and prove project’s NPV and others are the lack of available credit for remodeling projects and need to keep all available cash for the operating costs and reserves.

Repurposing

Adaptive reuse for hotels? We are already seeing purchase to be repurposed as senior living. Other ideas include apartments, offices, transient living.

Convention hotels in secondary cities were already losing appeal and this crisis might be a final blow. 600 rooms with 70,000sf of meeting space might be hard to repurpose or get back to profitability

The Lenders

Good news is that some transactions are closing, but…. aside from looking for only strong sponsors, there are extra harsh requests for reserves that increase already high cost of capital. 

“CMBS holders are telling us that they are not going to be so lenient in Q3 as they were in Q2” – As expected, conversations are going to go into the next stage.

The first stage is happening now – owners are looking for bridge and rescue capital. Lenders might not be interested in this conversation and might wait until the next phase to negotiate with holders of the notes or even for the final phase of short sales and buying out complete assets at deep discounts. Cash is definitely going to be the king and we might see large moves by private equity funds.

Meanwhile, we are still discovering the price. There are offers to buy at 30% discount but at that price point owners are out of equity. Without the incentive to sell they might decide to wait a bit longer.

To finish on the positive note:

There are loan/sale transactions closed even with all the uncertainty.

Boutique hotel in Colorado at the edge of the national park is doing great with increasing ADR’s .

To see the survey participants took, click here.

Participants:

Zachary Streit , Daniel Gutierrez , Mark Davidson , Ed Duess , Allen Khatchatrian , Howard Hendler , Austin Jones , Alex Bajc

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