CLOSED FOR GOOD: Highgate Hospitality on Oct. 1 closed its Hilton Times Square Hotel in New York City. Average occupancy in New York City hotels was below 40 percent, compared to more than 90 percent a year ago, reports STR. The 478-room full-service Hilton Times Square opened in 2000. The closure put 200 people out of work. The shuttering of the landmark property is the tip of the iceberg, say industry officials who forecast a wave of hotel closures unless the federal government provides direct relief to an industry suffering steep losses as a result of the coronavirus pandemic. (Photo: Hilton)
Time is running out for the nation’s 57,000 hotels in need of federal government financial relief as the coronavirus pandemic in the U.S. heads into its eighth month, say leaders at AAHOA and the American Hotel & Lodging Association.
But they’re not the only ones sounding the alarm.
An Oct. 15 letter addressed to President Donald Trump asking him to approve “immediate modifications” to the federal government’s $600 billion Main Street Lending Program is signed by Staton and Rogers and 78 other industry leaders, including CEOs of major hotel franchisers.
According to research from the American Hotel & Lodging Association, two thirds of the nation’s 57,000 hotels will close without federal government relief.
Experts Lodging Leaders interviewed say hotel businesses are on the precipice of failure, and if they fall they’re taking more than 5 million jobs with them.
Congress and the U.S. Department of Treasury this week are hashing out another round of stimulus spending. Congress is expected to vote on some form of relief this week.
Meantime, government affairs advocates at AHLA and AAHOA are on Capitol Hill every day lobbying Congress to enact legislation that will save the hotel industry from the death throes of the COVID-19 pandemic.
LISTEN: ON THE BRINK OF DISASTER: Episode 291 of Lodging Leaders podcast examines efforts by AAHOA and AHLA on Capitol Hill to ward off a wave of hotel business foreclosures that could cut the number of the nation’s 57,000 hotels in half.
One of the major goals is the expansion of the Small Business Administration’s Paycheck Protection Program into a second round of funding.
They’re also asking the U.S. Treasury and the U.S. Federal Reserve to redo the Main Street Lending Program to enable small businesses to borrow money to pay their mortgages and ward off foreclosure.
Industry leaders such as Staton and Rogers are fighting to be heard above the noise emanating from The Hill this election season.
Staton works to cut through the political din with the collective voice of hotel owners – small business investors and operators whose needs are often overlooked when big government moves to bail out big business.
“We have been at the ready for now months, talking to members of the House, Senators, members of the administration on literally a daily basis about trying to get more relief that would be specific to hoteliers,” Staton said.
“We’re really at a precipice,” he said, noting a wave of hotel foreclosures is imminent.
When the coronavirus pandemic brought international and domestic travel to a halt in March, most of AAHOA’s members were able to get forbearance on mortgage payments from their traditional lenders. But it’s been more than six months of delayed payments and banks are now facing regulatory roadblocks. Even if banks wanted to extend the terms of mortgage they cannot without the approval of the FDIC and a cash infusion to shore up the delinquent loans.
In addition, Rogers noted that as a result of the roadblocks traditional lenders are beginning to shy away from financing hotels, which could spell trouble for owners and investors in the near future.
LOAN DEFAULTS: As this bar chart shows, the coronavirus crisis has hit lodging the hardest, reports Trepp. The firm also reports the CMBS delinquency rate for hotels was 23 percent in September and 26 percent of hotel CMBS loans were in special servicing. (Source: Trepp)
CMBS a special case
Hotel owners facing CMBS debt are in league of their own as special servicers of this form of private debt cannot offer debtors a break in payment schedules without financial penalties.
So far, no federal legislation or financial policy has addressed troubled mortgages among the $16 trillion commercial real estate debt market and the $550 billion commercial mortgage-backed securities or CMBS market.
One major tool is a House bill called the Helping Open Properties Endeavor Act or HOPE Act, which would offer financial aid to hoteliers with commercial mortgages.
The act would allow the U.S. Treasury to guarantee loans that comprise up to 10 percent of a hotel’s mortgage debt.
According to Trepp, the CMBS delinquency rate for hotels was 23 percent in September and 26 percent of hotel CMBS loans were in special servicing.
Trepp reports that “both numbers illustrate a sector that is rife with distress and has yet to find a real source of respite.”
Executive Orders Requested
AHLA reports unless the federal government gives hotel owners financial aid, more than half of the nation’s hotels will go into foreclosure.
Staton said the relief does not have to be in the form of new legislation, noting the Trump Administration can unilaterally create a rescue package without Congressional approval.
The letter to Trump focuses on such action: “We are writing today to respectfully urge you to take immediate action to provide an injection of liquidity for industries hardest hit by this pandemic, including ours, by fully utilizing the Federal Reserve’s 13(3) emergency lending authority. This can be accomplished by establishing an asset-based lending facility or by replacing the rigid EBITDA leverage test with a loan-to-value ratio test.”
STATE HOTEL CLOSURES: The American Hotel & Lodging Association broke down the number of hotels in each state and how many would close if Congress does not extend the Paycheck Protection Program and if the Federal Reserve and the U.S. Department of the Treasury do not rework the Main Street Lending Program to enable asset-based businesses such as hotels to access $600 billion in loans to pay their mortgages. (Source: AHLA using data and analysis from Oxford Economics).
Staton said AAHOA members are grateful for and made use of the Paycheck Protection Program funds, which were part of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act enacted in late March.
Aug. 8 was the deadline for businesses to apply for a share of the $670 billion Paycheck Protection Program and more than $130 billion was not allocated.
Staton thinks that pool of money and other leftover funds from other CARES Act programs should find a more useful life. Namely, shifting the money to a revised Main Street Lending Program
Though the unallocated sum was retired on Oct. 1, the start of the federal government’s new fiscal year, Rogers of AHLA said Congress can re-allocate the money.
Even the most fiscally conservative members of Congress agree to reallocation of the funds, he said. “If it’s limited to businesses that are hurt most, we think that $130 billion will cover that.”
HOTEL SOLD TO PAY DEBT: Ashford Hospitality Trust, a hotel REIT based in Texas, in August reportedly sold its Embassy Suites Midtown Manhattan in New York City to Magna Hospitality for $115 million. Ashford Hospitality Trust acquired the 310-room property in January 2019 for $195 million. The sale satisfied $145 million in delinquent debt created by the coronavirus pandemic. Ashford Hospitality Trust in May returned $30 million from the federal government’s Paycheck Protection Program after being publically blasted for taking the funds meant for small private businesses and facing scrutiny by the U.S. Securities and Exchange Commission.
Short of revisions to the Main Street Lending Program, the most meaningful help for hoteliers can come from a relaunched Paycheck Protection Program, Rogers said.
“What we know will change for certain is who’s eligible, and the eligibility will be tied to what percentage of revenue loss you have suffered as an individual business. With the numbers we’re talking about now, with 25 percent probably being the threshold, virtually every hotel is going to qualify. So we’re happy there,” he said.
AHLA has asked Congress to include property taxes in the revised Paycheck Protection Program. “It’s a really smart thing to do because [Congress] is talking about giving money to local governments anyway. And they can help the property owner and help local government with the same dollar.”
As the stimulus program came to an end in late summer, AAHOA and AHLA sent numerous letters to Congress imploring House and Senate leaders to launch a second round of stimulus money that includes significant changes to initial programs.
In May, the Democratic-controlled House passed the Health and Economic Recovery Omnibus Emergency Solutions Act or HEROES Act that would expand the Paycheck Protection Program.
The Republican-controlled Senate will not consider the $2 trillion proposal and is working to devise its own plan.
Earlier this month Congress rejected a nearly $2 trillion proposal from the Trump Administration.
The Senate is expected to vote this week on what’s being called a “skinny bill,” which proposes $500 billion in relief just two weeks before the election.
All proposals so far include an expansion of the Paycheck Protection Program.
More than 150 travel organizations have joined the U.S. Travel Association’s COVID Relief Now campaign that is imploring the federal government to provide financial aid to the travel industry that will lose 1.3 million jobs by December if Congress or the White House fail to act.
Relief in a Bind
In a letter AAHOA sent in July to Republican and Democratic leaders of both chambers, the association noted hotel owners have exhausted the Paycheck Protection Program funds. They were able to pay their employees but they weren’t allowed to use the money to pay on their mortgage debt.
The U.S. Small Business Administration handles the Paycheck Protection Program. It also administers the Economic Injury and Disaster Loan program, which was renewed in the wake of the coronavirus crisis with $365 billion available in disaster loans.
Staton wrote the program provided limited assistance to hotel businesses, mostly because of lending caps.
Another huge frustration is the Main Street Lending Program, a six-hundred-billion dollar $600 billion initiative from the Federal Reserve that would lend money to business harmed by the pandemic.
But hotels are asset-based operations and as a result many lenders in the Main Street Lending Program would not underwrite hotels.
To date, less than 5 percent of the program’s funds have been allocated and almost none of it has gone to hotel businesses.
Rogers said that 5 percent allocation is really no allocation at all.
AHLA has urged U.S. Treasury Secretary Stephen Mnuchin to consider revising the program. “If you created this program that you yourself wanted, that you said would be a lifeline for businesses to survive and yet none of the money is going out, then by definition have to go back and look at it and say, ‘How can we change the rules to make this work?’” Rogers said.
Paycheck protection is part of an abbreviated proposal that the Senate is considering.
Called the Skinny Bill, the $500 billion measure is a pared-down stimulus proposal meant to help businesses weather the next few months and hopefully spur more meaningful relief.
“The reason we’ve been supportive of the ‘Skinny Bill’ is that it does include the PPP which is the main thing we need legislatively,” Rogers said. What’s frustrating is that both Democrats and Republicans favor a revised Paycheck Protection Program. “Let’s agree on the things we can agree on,” he said. “Let’s get it done now so businesses have access to that money.”
LISTEN: RELATED REPORTS: Check out our previous podcasts related to this report and the coronavirus crisis.
Episode 264 on government relief offered early on in the pandemic.
Episode 278 on the CMBS debt crisis.
Episode 281 on private equity rescue capital waiting in the wings.
Episode 256 in which AAHOA’s Cecil Staton talks about the impact the downturn has had on the hotel industry in the early days of the coronavirus.
Business Insurance Proposal
Girish Patel, principal and managing director at NewGen Worldwide, helped form an organization called HOTELS Together that promotes ideas and proposals to keep hotels solvent through the coronavirus pandemic.
The organization said it joins AHLA in supporting the Workplace Recovery Act proposed by U.S. Senator Steve Daines of Montana.
The measure would create a federal program that reimburses insurance companies that cover business lost as the result of government-mandated shutdowns in response to the coronavirus pandemic.
The Workplace Recovery Act would be retroactive, covering up to 90 percent of business lost since March 13, when President Trump declared the coronavirus pandemic a national emergency.
Daines’ bill is similar to other proposals modeled after the 9/11 Terrorism Risk Insurance Act.
Patel, who is a lawyer, said Venable LLP, a law firm in Baltimore, advised in a paper that the Trump administration, including the U.S. Department of the Treasury, can legally move forward and unilaterally pass any form of relief to the nation’s business community.
That means aid outlined in proposals such as the HOPE Act doesn’t have to wait for Congressional approval. The White House can immediately rule that borrowers on loans from conventional banks and CMBS facilities can qualify for relief.
Resources and Links