337 | Open-and-Shut Cases: How hoteliers managed decisions to close or stay in business

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PANDEMIC HOTEL GUESTS: Health care workers in April 2020 leave a Times Square hotel in New York City to get on a bus that will take them to a hospital treating COVID-19 patients. New York hotels that closed in early 2020 when occupancy plunged reopened that spring to serve thousands of medical workers. ( PHOTO: Associated Press/Mark Lennihan)

New openings and re-openings varied depending on market demand, say operators

When the coronavirus pandemic hit the U.S. with full force in March 2020, hotelier Kal Patel of Mason, Ohio, was building two new hotels. He had eight hotels open and operating in Ohio and Kentucky.

Patel is president and CEO of Crestpoint Cos. In an interview with Lodging Leaders at that time, Patel said occupancy fell so deeply at his existing properties that ramping business back up after the pandemic would be akin to opening his new hotels.

Lodging Leaders recently checked in with Patel to find out the state of his hotels and the decisions he made to get to other side of the business downturn.

Despite the initial drop in occupancy at his existing properties, Patel decided to keep them open. He said he was “adamant about that decision.” Closing the operating hotels would send a negative message to employees preparing to work at the new properties. And Patel wanted to keep the employees who’ve been with him for years.

LOOKING FOR AN OPENING: Crestpoint Cos. in June 2020 posted this photo on Facebook of its Tru by Hilton under construction in Monroe, Ohio. Kal Patel, president and CEO at Crestpoint, said the 94-room property opened just before the Fourth of July with little public fanfare as occupancy hovered around 25 percent. This year, Patel said, the hotel business is ramping up like normal.

Moving Ahead

Crestpoint began construction in July 2019 of a Tru by Hilton in Monroe, Ohio, and Fairfield Inn & Suites by Marriott in Bardstown, Kentucky. Both properties are midscale, select-service with 94 rooms. They opened in July 2020.

In the last half of March 2020, Patel saw occupancy plunge at his existing hotels to as low as 5 percent. He was determined to push through.

“It was a mad dash to figure out how to cut cost,” he said. “We sat down. We kind of looked at, ‘OK, what are the central things you still got to deliver so that would make the experience for whatever guests coming in hospitable but yet we can cut back some of these things that are unnecessary?’”

Patel and his team consulted with other hotel operators. They turned to the brands for direction and they followed restrictions imposed by state and local governments.

With all the information in hand, Patel said, “We kind of formulated our own game plan and figured out, ‘OK, here’s the things that we need to scale back on and here’s the things that we need to keep.’”

When it came down to what to keep, Patel had to lay off some employees and operate the hotels with a skeleton crew, mostly those in management who became the ultimate multitaskers in running the hotels.

As Patel gradually reopened the hotels to full capacity, many – but not all – of the workers returned.

“As we step along the way, moving forward, things starting to bounce back,” he said. “Labor was still a challenge. We couldn’t get all those people to come back. We get a lot of people that apply they’ll come in for interviews and then they don’t come back for the position when it comes time. It’s the same struggle for everyone.

“Maybe another six months we can try to get people coming back in, but we’re having to become creative, find better ways of advertising as well as incentivizing folks to come back in.”

OPEN-AND-SHUT CASES: As the coronavirus pandemic crippled the U.S. travel industry, owners and operators of hotels faced tough decisions in whether to remain open. In Episode 337 of Lodging Leaders podcast we explore the challenges owners and managers faced in deciding to close hotels and what it took to reopen. We also talk to hoteliers who struggled with ramping up business at hotels that were at such low levels of occupancy, they might as well have been closed. And we feature owners who opened newly built properties during the pandemic.

Workers Gone for Good

The American Hotel & Lodging Association in February shared data compiled by Oxford Economics that shows the number of hotel jobs lost in each state from 2019 through 2021.

Ohio lost 15,000 hotel jobs between 2019 and 2020, with just 5,000 of those jobs expected to return by the end of this year.

Kentucky lost 5,000 hotel jobs with 3,000 expected to return.

As Patel and other hoteliers have experienced, an open position does not necessarily attract job candidates.

Joblist in the second quarter of this year surveyed 30,000 workers laid off during the pandemic, including those who lost jobs at hotels, restaurants and bars.

More than a third of the former hospitality workers said they do not want to return to the industry.

Joblist discovered that even as the hospitality industry rebounds, more than half of former hospitality employees surveyed have moved on or plan to move on to other industries in search of better pay, better benefits and more flexible work schedules.

However, nearly 40 percent of former hospitality workers said an increase in pay might convince them to return. They also might change their minds if the employer offers more benefits and or a pay bonus.

An interesting finding is that many people surveyed said if a prospective employer offered COVID-19 vaccines as an incentive, they would consider accepting the job. That says something about the fear prospective employees may have about contracting COVID-19 while on the job.

Patel said it was a challenge to recruit employees for Crestpoint’s new hotels that opened at the height of the 2020 pandemic summer.

“We opened the Tru right before the 4th of July. We had hired our GM about two months prior to and our director of sales, we actually shared from one of our other hotels. So that made it a little bit easier instead of trying to find someone,” he said.

“The rest of the staff we hired probably within a month of opening. And that was quite challenging because people were afraid to come in to work. It was a challenging environment.”

Besides staff members, the brand teams at Tru and Fairfield Inn also wanted to keep their distance. The opening inspections and equipment installments usually done in person were accomplished remotely.

While hiring and getting staff onboarded at the Tru in Monroe, Crestpoint found it a bit easier in Bardstown, where it opened its Fairfield Inn & Suites at the end of July 2020.

“Because you’re in a smaller town, it’s a 30,000 population, we really got to know the community well ahead of time. And so that played a big role in it and we were able to fill most of those positions pretty quickly.”

FIRST GUESTS: A couple from Detroit were the first guests of the Tru by Hilton in Monroe, Ohio, when it opened in July 2020. To celebrate the inaugural guests, Owner-operator Crestpoint Cos. charged $1 for the first night at the new hotel. Throughout the rest of 2020, the new hotel struggled to ramp up business as the pandemic curbed travel, said Kal Patel, president and CEO of Crestpoint. ( PHOTO: Tru by Hilton -Monroe/Facebook)

Community Connections

At both hotels, Crestpoint held off on grand-opening celebrations. It held one in August at the Fairfield Inn in Bardstown and has yet to set a date for the Tru in Monroe.

It might seem like an inconsequential decision, but grand openings and ribbon cuttings are as much for the hotel staff as they are for prospective guests and the community.

“That enthusiasm that we normally get when we opened the new hotel wasn’t quite there,” Patel said. “We internally did a lot of things, made a lot of trips down to the properties, met with the staff, ordered pizza, did things to just kind of get them excited about a new hotel opening.

“It was challenging because we’re 10, 20 percent occupancy and typically you open in July any hotel you’re going to start seeing a ramp up come real quick, which it didn’t.”

Patel said developing relationships within the community is important for any new business but it was especially vital amid the pandemic.

“Because we had so much guidance coming from so many different things, we internally created our own kind of brand standards and said, “OK, here’s our company standards. Let’s make sure we’re meeting the requirements of the city and local municipalities more importantly than anything else,’” he said.

Once the hotels opened, the next step was ramping up business. It was a particular conundrum amid a pandemic. But Patel is seeing green shoots of demand in mid-2020 bloom into greater volumes of business this summer.

“We always try to target our openings somewhere between May and August. That’s typical. When we open at those times, we should reach 60 to 65 percent occupancy within six months. This of course didn’t happen. It was more like 20 to 25 percent within six months. And now we’re actually feeling like we’re ramping up like a normal hotel should,” Patel said, adding, “And that goes for all of our existing hotels.”

Swimming pool chemicals had to be recalibrated all the pools. Maintenance engineers need a refresh. The breakfast buffet set up had to start at square one, including training employees on food prep.

“It was going back through all the things that we normally would do when we opened the new hotel,” he said. “And then the ramp up time now is also starting to take six to 12 months before we really get ramped up.”

Patel certainly was not alone in opening new properties in the pandemic year 2020.

Last year, 840 new hotels opened, reported Lodging Econometrics.

LE also reported in July that in the first half of this year 470 hotels opened in the U.S.

It forecasts a total of 900 new hotels will open this year.

MOUNTAIN TO CLIMB: Indigo Road Hospitality Group this summer opened its first hotel, the Skyline Lodge in Highlands, North Carolina. Larry Spelts, president of Indigo Road’s Lodging Lifestyle & Adventures, said because of the pandemic the $15 million renovation of the 100-year-old hotel presented many challenges from financing to construction timelines to ordering FF&E.

Mountain Experience

Among those opening this year is hotel developer and manager Larry Spelts, who faced uncharted territory in developing a boutique property amid the pandemic.

Spelts teamed up with restaurateur Steve Palmer in early 2020 to expand Indigo Road Hospitality Group with a hotel development and management department.

Spelts is president of the company’s Lodging Lifestyle & Adventures division.

His new adventure began with the global outbreak of COVID-19.

In early 2020, Indigo Road Hospitality had management agreements with three lodging projects: The Flat Iron building in Asheville, North Carolina; the Savvy Hotel in Savannah, Georgia, and the Skyline Lodge in Highlands, North Carolina.

The first two are adaptive re-use developments and they were postponed when the pandemic hit. Meantime, the prospective buyers of the Skyline Lodge got cold feet when their lender pulled out. So Indigo Road Hospitality decided to take on the project as owners.

Spelts turned to the owner, Robert Nass, a local real estate developer who’d had the iconic property for 30 years. He agreed to finance the redevelopment. Indigo Road Hospitality agreed to eventually seek financing elsewhere and buy Nass out of the deal.

Spelts said he and Palmer believed the lodge nestled in a plateau in the Appalachian Mountains presented a “irreplaceable opportunity.”

“It is just an amazing asset in an amazing market. We really believed in the project.”

Indigo Road Hospitality’s headquarters is in Charleston, South Carolina. It has restaurants in its hometown as well as nearby markets including Charlotte, Atlanta and Nashville.

“We had a sense, based on our experience that appealing leisure markets with strong drive-distance feeder markets tend to do well during significant disruptions to travel,” Spelts said.

In the spring and summer after 9/11, Spelts witnessed a comeback of leisure travelers who selected drive-to destinations for their getaways.

He expected the same trend during the pandemic era.

The traveling public proved him right.

TRAVEL DREAMS: Destination Analysts posted this shareable graphic on its website. In May, the company reported of 1,200 Americans surveyed, most planned to take a summer trip. That practically a reversal from a Destination Analysts’ survey in May 2020, when most respondents said they had no intentions of traveling anytime soon.

In May 2020, Destination Analysts reported of 12,000 American travelers it surveyed, 61 percent said they did not plan to travel anytime soon – by plane or by car. One year later, Destination Analysts surveyed those same travelers and found 77 percent planned to take a trip within the next three months.

AAA reported in May that 37 million American travelers hit the road on Memorial Day weekend. That was a 60 percent increase from May 2020.

After getting seller financing for the project, Indigo Road’s got construction financing through a business partner of Indigo Road who was connected to private equity.

The renovation plans called for a massive overhaul of the 40-room property.

With the last renovation occurring in 1965, the 100-year-old building was to be completely gutted, taken down to the studs.

Indigo Road planned to replace the electrical and plumbing systems and add premium internet infrastructure.

Initially calculated to cost around $10 million, the project wrapped up at $15 million.

Indigo Road closed on the deal in September 2020 and began construction in December. It fully opened in August with 39 rooms, a large suite and two restaurants, including Indigo Road’s Oak Steakhouse.

“It definitely took us longer than we anticipated,” Spelts said. “Everything is harder to get done during the pandemic.

“Most of our subcontractors had difficulty with labor. And then the supply chain disruptions. I’ve never worked on a hotel development or renovation project where we had to re-specify finished goods – furniture, fixtures, equipment, anything from floor tiles to seating to mattresses, whatever, you name it. We would specify, we would be told it was available within a certain amount of time. And then we’d find out, oh no, it’s going to be four times longer than we thought. So we had to cancel that order and re-specify something else. And then have it happen again.

“It’s incredible that we actually got to be able to do this within a year given how many times we had to cancel orders and re-specify products.”

Skyline Lodge opened half its rooms and one restaurant in June and rest of the rooms and Oak Steakhouse two months later. Because Indigo Road was unable to recruit enough staff, it opened five days a week rather than seven to give employees time off.

It wasn’t the only business facing staffing challenges.

“The phased opening was just a result of the contractors not having the manpower to get everything done at once. If we could have had sufficient manpower, the hotel could have opened a hundred percent in June. But we only have a fraction of the manpower needed by all of the trades. None of them were immune from being impacted by COVID and the staffing shortage.”

TRAVEL PLANS: Destination Analysts in May surveyed 1,200 Americans who shared their travel plans, however tentative, through the rest of 2021.

Mixed Recovery

The late Charles Marshall founded Marshall Hotels & Resorts in 1980. Today, his son, Michael Marshall, leads the management company as president and CEO. He grew up in the hotel business and has seen his company weather four major downturns.

Marshall Hotels is based in Salisbury, Maryland. It manages 75 hotels positioned in all the chain scales from coast to coast. The hotels range from a 16-room boutique to a 600-room full-service operation.

Marshall said the recovery is varied depending on the type of asset and the markets in which they’re located. Early in the pandemic, the company and its clients decided to temporarily close hotels where government mandates stifled commerce.

All told, the company shuttered about 10 hotels, most of them for the short term.

Two months into the coronavirus pandemic in 2020, Cushman Wakefield surveyed hotel owners who had closed their properties and found that the biggest factor influencing the decision to reopen was the level of demand.

That was followed by the standardization of health and safety protocols from the likes of the Centers for Disease Control and Prevention and the availability of supplies as business slowdowns or closings created kinks in the distribution chain.

We asked Marshall how the decision was made to close the properties.

“In some cases it’s easier to tell you why we stayed open,” Marshall said.

“You look at a market like New York City, Manhattan in particular, where I think over 400 hotels closed. We stayed open and we pursued the medical business. We actually ran a higher occupancy and higher rates during the close down of the Manhattan than we did the following year.

“But in Ocean City, Maryland, where we have eight properties, the government just said, ‘We’re shutting down everything and we don’t want any visitors.’ And so we had to shut down.”

The hardest part of that decision, Marshall said, was the loss of advance deposits. The company managed hotels with $2 million in advance deposits it had to reimburse.

“Within two weeks, I got nothing left,” Marshall said. “We’re coming off the winter where we’re hemorrhaging cash, and now all the money’s going out of the bank.”

At that time, Marshall said, he and other business people had no idea when vacation markets would reopen.

Closing a property isn’t as simple as turning off the lights and locking the doors. Marshall Hotels had to keep people on staff to maintain properties that were empty or at bare minimum occupancy.

“We’ve got to keep this building maintained with a body 24/7, just for insurance purposes,” he said.

“I want to keep my best people, anyway, I’m going to keep my management staff on we’ll let them work front desk shifts. If we can just run enough rooms to cover payroll, already knowing we’re not going to be making a mortgage payments and that sort of thing, we just wanted to stay alive. If we couldn’t stay alive, then we were going to shut it down, again knowing we were going to have to keep those people on.”

A hotel void of people will quickly near death and resuscitation is expensive.

Hotel employees shut down floors and turned the indoor thermostats to 58 degrees. They kept the water on, flushing every toilet once a week and turning on the faucets and showers to keep the line clear of residue.

TOURISTS RETURN: Thousands of people on Memorial Day weekend 2020 stroll the Boardwalk in Ocean City, Maryland. In March 2020, public officials in Ocean City prohibited visitors to the resort town. The restrictions led to closing of hotels, restaurants and other businesses. After the city reopened the beach and boardwalk on May 9 and Gov. Larry Hogan lifted the state’s stay-at-home order on May 15, tourism quickly revived, straining hotels as they struggled to reopen with fewer workers and COVID-19 safety protocols in place. ( PHOTO: Washington Post)

Back to Business

Marshall said keeping core employees in place enabled the company to quickly reopen when restrictions were lifted. In resort markets such as Ocean City, Maryland, Marshall said once hotels resumed summertime business, it was like opening the flood gates. That might be a blessing, but the challenge was fewer employees on hand to manage the influx of guests.

“The struggle becomes being able to get enough staff back in place in order to handle the amount of people that are coming in,” he said. “We can only open half our inventory. We didn’t have the staff. We could have sold more rooms, but we didn’t have the staff to take care of it. And that was a problem last year. This year, we prepared for it.”

Owners whose New York City properties are managed by Real Hospitality Group also decided to close in spring 2020 as state and city mandates curbed business.

Sanjay Bedi is senior vice president of operations at Real Hospitality Group. He’s based in New York City, where the company manages nearly 50 hotels.

Early in the pandemic last year, Bedi oversaw the closing some hotels for about three months.

“With all the restrictions coming in, we did some financial analysis,” Bedi said. “We knew business would be near zero. To minimize the loss for owners, in many cases, it was less expensive to close the building than to keep it open.”

Real Hospitality began to reopen when it recognized a new opportunity to sell rooms.

“Around May, the first big surge of the first-responder business started coming back. If you remember, they had brought a ship to New York City and had turned the Jacob Javits Center into a big medical facility. That also brought the need to get hotel rooms. We were getting first responders. We were getting the security teams and things like that.”

After the surge of health care workers came the construction workers as the city allowed infrastructure projects to get back in action. The tradespeople stayed at hotels rather than go home and risk carrying or contracting the virus.

Representatives of pharmaceutical companies also booked rooms. “There was some movements among consultants in pharmaceutical industries, because remember this was the time where the whole news of vaccine being developed and other things was coming up,” Bedi said.

“As we saw some movement in some other industries than just first responders, that was the focus of our sales teams, to reach out to those contacts and secure as many contracts as possible.”

Clean and safe was a huge selling point for all hotels amid the pandemic. Before it could open its rooms, Real Hospitality had to restructure its sanitation protocols, cleaning the rooms and the public areas.

At the full-service properties, the kitchens were another huge task.

“The kitchen immediately was not a concern as we opened. As a few months passed and we were getting some leisure guests back, that’s when we got the kitchens open. And getting the kitchen back open was getting the health inspections done again. You went through the whole cleaning process and you had to get the health inspector back to make sure that you were ready to open your food and beverage operation.”

COMMUNITY SUPPORT: Highlands, North Carolina, is in the Smoky Mountains, part of the Appalachian region. Population is about 1,000 – a small town that draws large numbers of visitors from March through November. Indigo Road Hospitality Group this summer opened the Skyline Lodge in Highlands after a $15 million renovation. To market the boutique property, Indigo Road formed relationships with neighboring hotels that when overbooked they directed guests to Skyline Lodge. The company also did an email blast to thousands of its restaurant customers in feeder markets such as Atlanta, Charlotte and Nashville. ‘The response was tremendous,’ Spelts said.

Spreading the Word

Hoteliers interviewed for this report said they used several tactics to let the world know their hotels were open. Each hotel’s website let visitors know it was in business and practicing COVID-19 safety protocols. Once hotel brands certified their franchised properties were meeting clean-and-safe standards, they shared the opening news across domestic channels. Third-party booking companies also had their COVID-19 safety rules tied to marketing schemes.

The outlier was Indigo Road Hospitality, which went organic with its marketing strategy. Spelts said the market in which Skyline Lodge is located is a “unicorn.” It is a high-barrier-to-entry market that is undersupplied with hotel rooms. Indigo Road formed friendly tacit agreements with other local lodging businesses to send their booking overflows to Skyline Lodge.

What made the biggest difference, Spelts said, was Indigo Road’s restaurants’ guests who shared their email addresses with the company.

“Because we have 25 restaurants approximately we opened with a pretty good database of customers who’ve opted in to hear from us in select markets,” he said. “We had those restaurants do an email blast to their customer base, announcing that Indigo Road Hospitality Group has a hotel in Highlands, North Carolina, with an Oak Steakhouse. And we made an introductory offer to our restaurant customers in our major feeder markets, and the response was tremendous.”

COVID Surge

As have hotels opened or reopened, the degree of government health restrictions fluctuates. As the COVID-19 delta variant causes infectious surges, New York City announced in August that prospective patrons of hotels, bars, restaurants, theaters and other public venues have to show proof of vaccination.

Marshall said groups that booked meetings and events at the hotels his company manages in New York and resort markets are beginning to shift to spring or next fall. Bedi said he has not seen a difference in booking pace but it’s still too early to tell.

New York City began to enforce the mandate on Monday.

The challenge for hotels is to manage the guest expectations amid the shifts in restrictions, Bedi said.

“We are trying to keep that balance between complying with regulations coming out of the city, the state or even the CDC and customer expectations.”

When the New York hotels first reopened, Bedi said its guests were “very, very cooperative due to the fact that most of the amenities in the hotel were closed because of the restrictions. And they understood, they understood the mask.

They understood we had social-distancing requirements in the lobby and things like that.

“But slowly, slowly as the leisure guests came back – and that was the first segment that came back in our hotels – their expectations were a little bit more than the initial guests. Because they were spending their money to come to a hotel, they wanted the experience.”

A hotel’s occupancy level determined how Real Hospitality reintroduced food and beverage. They did it in stages. “Initially just grab-and-go and maybe one or two items and then slowly introducing hot items as we got busier and then having a full restaurant open,” Bedi said.

Leisure guests expect a certain amount of pampering, pandemic or no, Bedi said. “We changed our housekeeping standards. Instead of very limited housekeeping service, we gradually moved to on-demand housekeeping service. So if guests wanted it every day, we said, ‘OK, we will give it to you every day.’”

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