Category: Hotels & Short Term Rentals

U.S. Airlines Face the End of Business Travel as They Knew It

Half the respondents in a survey of Fortune 500 CEOs said trips at their companies would never return to what they were before Covid-19.

(Bloomberg) — U.S. airlines hammered by the catastrophic loss of passengers during the pandemic are confronting a once-unthinkable scenario: that this crisis will obliterate much of the corporate flying they’ve relied on for decades to prop up profits.

“It is likely that business travel will never return to pre-Covid levels,” said Adam Pilarski, senior vice president at Avitas, an aviation consultant. “It is one of those unfortunate cases where the industry will be permanently impaired and what we lost now is gone, never to come back.”

At stake is the most lucrative part of the airline industry, driven by businesses that accepted — however grudgingly — the need to plop down a few thousand dollars for a last-minute ticket across the U.S. or over an ocean. While millions of customers fly rarely, road warriors are constantly in the air to close a deal, depose a witness or impress a client. Business travel makes up 60% to 70% of industry sales, according to estimates by the trade group Airlines for America.

That’s under threat in the wake of an unprecedented collapse in passengers that started four months ago. Half the respondents in a survey of Fortune 500 CEOs said trips at their companies would never return to what they were before Covid-19, according to Fortune magazine.

Even industry leaders such as Delta Air Lines Inc. Chief Executive Officer Ed Bastian are bowing to the inevitable.

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A Rise in Distressed Hotel Deals Could Hit in Late Summer

Delinquencies have spiked quickly on hotel properties, but we are still a few months away from a wave of distressed deals hitting the market.

The hotel sector is sitting atop a cresting wave of growing loan delinquencies that may soon break and douse the market with distressed investment opportunities. Investors who have been lining up to capitalize on distress since the COVID-19 crisis began are now sizing up the extent of the coming buying opportunities, how soon deals will hit the market and how deeply prices will be discounted.

Hotel owners remain saddled with cashflows that have plummeted and face a prospect of a prolonged and painful recovery with both leisure and business travel unlikely to roar back until the virus is under control. Although hotel metrics show some signs of improvement along with phased reopening, occupancies remain at an anemic 39.3 percent, while RevPAR is still down some 65 percent at $33.43, according to the latest data from STR for the week ending June 6.

“Many hotel owners are currently reviewing their portfolios to evaluate the hotels they will continue to support while others may require too much capital to carry them through the duration of the downturn,” says Patrick Arangio, vice chairman of the national loan and portfolio sale advisory practice at CBRE.

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Park Hotels Closes In on $500 Million Junk Bond Sale

The REIT had held discussions with Bank of America, among others, about a potential high-yield bond offering.

(Bloomberg)—Park Hotels & Resorts Inc. has held discussions with lenders including Bank of America Corp. about a potential $500 million high-yield bond offering, according to a person with knowledge of the matter.

The Tysons, Virginia-based real estate investment trust, which was spun out of Hilton Worldwide Holdings Inc., has sought credit ratings ahead of what would be an inaugural junk bond, said the person, who requested anonymity because the talks are private. The company could launch a transaction as soon as this week, the person added.

Spokesmen for Park Hotels and Bank of America declined to comment.

Companies including cruise line operators, airlines and hotel chains have sold bonds in recent weeks to shore up liquidity as a global pandemic keeps travelers at home. Park Hotels, like many of its rivals, has seen the value of its shares plummet. Its stock has tumbled more than 65% year-to-date, giving it a market value of about $1.9 billion.

In delivering first-quarter earnings earlier Monday, the company said it had suspended operations at 38 of its 60 hotels due to Covid-19, and had reduced the capacity at its remaining hotels to 15%. Its portfolio includes the Hilton Hawaiian Village Waikiki Beach Resort, the Hilton San Francisco Union Square and the New York Hilton Midtown.

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Marriott CEO Says Coronavirus Pandemic Will Change Hotel Stays

Arne Sorenson said the company is working on new ways to protect hotel guests and workers.

(Bloomberg)—No one knows when the lodging business will bounce back from the social-distancing measures designed to slow the spread of the coronavirus, but it’s a safe bet that the deadly pandemic will change the experience of staying in a hotel.

Marriott International Inc. is working on new ways to protect guests and hotel workers, Chief Executive Officer Arne Sorenson said Monday on Bloomberg Television’s Leadership Live. That includes more rigorous cleaning protocols, masked hotel workers, and other methods for keeping people apart.

“I’m hopeful those things aren’t permanent, but instead are about communicating through the operating tools that you can be safe in our hotels, whether you work there or are staying there,” Sorenson said.

Sorenson has spent the better part of two months managing through the worst crisis in the company’s history. The pandemic has shut down travel and hammered the hospitality industry.

Marriott has been forced to close roughly 25% of its 7,300 global hotels, including about 1,000 in the U.S. The company has also furloughed tens of thousands of workers.

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Hotel Occupancies Have Cratered. What Happens Next?

The recovery hotel experts had hoped to see in June now seems more likely to potentially arrive in July or August.

The good news for the hospitality sector is that occupancy rates likely won’t fall in the coming weeks. But that’s only because occupancies have already dropped so low.

Less than a quarter (22.6 percent) of the hotel rooms in the U.S. were occupied in the week ending March 28, according to STR. That’s down from 80.3 percent at this time last year.

“Occupancy rates in the U.S. will likely not get much worse, partially because they can’t,” says Jan Freitag, senior vice president for STR, based in Nashville, Tenn.

Hotel properties are likely to operate at a fraction of their capacity for months, as most potential guests cancel travel plans and stay home to slow the spread of the novel coronavirus. The first numbers are showing how small this fraction is likely to be, as hotels decide whether to continue to operate or close their door and reopen once the crisis has passed.

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Hotel Owners Are About to Blow Through Cash on Virus Travel Cuts

Even well-capitalized hotel owners will blow through their cash reserves quickly in today’s environment.

(Bloomberg)—Some Seattle hotels saw occupancy rates fall below 10% last week, even before fresh guidance against public gatherings from the federal government presented a new challenge to the U.S. hospitality industry.

The data from the Downtown Seattle Association shows how bad things could get for hotel owners in cities where cases of the novel coronavirus were slower to arrive.

Travel restrictions and restaurant closures aimed at stopping the spread of the virus, along with a looming recession are all bad news for the hospitality industry, and even well-capitalized owners are going to blow through cash reserves quickly, Jonathan Falik, chief executive officer of JF Capital Advisors, said in an interview.

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Uncertainty Freezes Hotel Sales in Manhattan

Hotel sales in the Big Apple had crashed to a halt even before coronavirus took a bite out of people’s travel plans and disrupted conventions and major events.

Even before the novel strain of coronavirus (COVID-19) began spreading in New York City area, buyers and sellers of hotel properties had a hard time agreeing on prices. For example, no deals closed to buy or sell hotels in New York City’s borough of Manhattan in November, December and January, according to Real Capital Analytics, based in New York City.

“Three months of no transactions is a rare event in Manhattan,” says Jim Costello, senior vice president for RCA.

New York City has been one of the strongest markets for hotel rooms in the U.S. But developers finally opened enough new hotel rooms in 2019 to reduce the occupancy rate. The outlook for 2020 was uncertain. Developers planned to open even more new rooms with New York’s economy projecting continued growth. The outlook became uncertain in early March. As coronavirus spread across the U.S., major companies cut back on travel and event planners and conference organizers cancelled a growing list of public events. It’s taking a bite out of the hospitality sector already.

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Airbnb’s $30 Billion Listing Must Do More for Cities: Alex Webb

The rise of the sharing economy means the prices of vacation rentals and apartment rents are linked more than ever.

(Bloomberg Opinion)—Which would you prefer: cheaper rent or a cheaper holiday rental?

I’d wager heavily that most people would answer “rent.” It’s a bigger slice of personal spending. Short-term accommodation accounted for just 1% of U.S. household budgets in 2016, compared to the 16% spent on housing, according to analysis from the Economic Policy Institute, a think tank based in Washington, D.C.

The rise of the sharing economy means the prices of both are linked more than ever. Airbnb Inc., which revolutionized travel by making it (slightly) cheaper and easier to find a decent place to stay in popular tourist destinations around the world, has also faced criticism for driving up rents and hollowing out neighborhoods while municipal authorities struggle to catch up.

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Exclusive Research: Navigating an Evolving Hospitality Sector

Investors point to opportunities and challenges as part of NREI’s first exclusive research on hospitality real estate.

The hospitality sector is notoriously the most volatile of real estate asset classes. Business and leisure travel trends are highly correlated to broader economic conditions. And the sector does not have the benefit of long-term leases to help soften the blow of cyclical swings.

The effects of that fundamental nature of the sector are evident in our first exclusive research examining hotel investment. As a result, while the numbers are bullish and generally consistent with what NREI has found for other property types, that level of optimism is more muted. Moreover, the rise of third-party room and home sharing apps like Airbnb and VRBO is a growing concern for the sector and its outlook.

Overall, 76.9 percent of respondents pointed to those services as having an impact on the sector. Respondents had a lot of thoughts on these services in open-ended responses as well.

“There will be continued pressure on occupancy for extended stay and all-suite hotels from Airbnb, etc.,” one respondent wrote. Another added that a challenge for hotels is that owners will “have to differentiate from what can be found on Airbnb and VRBO.”

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Demand for Corporate Housing Continues to Rise

Short-term housing options can be a win-win for all parties involved.

No matter the type of multifamily you own, from luxury units to Class B multifamily, you’ve likely heard the term “corporate housing” or “temporary housing.” This refers to fully furnished and fully serviced temporary housing units available for short-lease terms. A few years ago, we saw this trend take the industry by storm, with employees on out-of-town business topping the list of reasons for high demand. Since then, its popularity has only risen. Corporate housing is now considered a viable option for many renters, including millennials and Generation Z looking to hold off on buying a home, empty nesters, seasonal travelers and expatriates, military and government personnel, and many more.

From 2014 to 2018 alone, corporate housing experienced a 12% combined annual growth rate from $64 billion to $101 billion, in comparison to the 3% hotels experienced in the same timeframe. With growth like this, many apartment owners are eager to expand as major players for corporate relocations—resulting in healthy competition within this market. However, in today’s climate owners are wise to take a deeper look at the trend to not only reap success but enhance its value for renters, major employers, and the general community.

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