"Last straw" for NYC hotel industry?

David Goldsmith

All Powerful Moderator
Staff member
Business at city hotels down a stunning 90%
Sales tax figures tell darker story than occupancy rates

Of all the industries devastated by Covid, hotels have perhaps been hit the hardest — and far worse than occupancy rates would suggest.
Sales tax from hotels from June through August were down 90 percent from the same time last year, according to an analysis by the Citizens Budget Commission. That represents a shortfall of $2.2 billion and was even worse than the previous quarter’s 88 percent drop.

The occupancy rate at hotels in the five boroughs in mid-August was 41 percent, but that figure is deceiving because it only counts establishments that are open. Scores of hotels have closed, many of them permanently, and those that remained open were forbidden from hosting large events such as conferences and weddings.

The precipitous drop in sales tax collection shows just how much business at hotels has withered in the past year. It was the steepest decline among all the sales tax streams collected by the city and the state, although the third-quarter drop in the recreation and entertainment sector was more than 90 percent after a 71 percent year-over-year decrease from March through May, the report found. Between that sector and personal services, where collection was down by more than half, sales tax revenue was down by about $1 billion in each quarter.

Overall, sales tax revenue across all sectors fell 23 percent over the summer to $34.2 billion. The decline was less severe than the drop seen from March through May, but sales tax collection in the city has lagged that of the rest of the state, where tax sales have rebounded to their 2019 levels.
In the city, restaurants saw the biggest dollar volume decline, with sales down $9 billion from March through August.
One bright spot was retail, where year-over-year sales tax collection was down only 5 percent in the third quarter after being off by 32 percent from March through May, the budget watchdog found.

The Real Estate Board of New York earlier this month found that the city and state have missed out on $755 million in tax revenue this year from real estate sales.
 

David Goldsmith

All Powerful Moderator
Staff member
Stemming losses, Hilton sets sights on office workers instead of tourists
Hotel giant reported a net loss of $81M andRevPAR was down 60%

Hilton Worldwide Holdings is still bleeding cash, but its CEO is confident the troubles are just temporary.
“We’ll see what happens with all of these crazy elections here in the U.S.,” Chris Nasetta said on the hotel giant’s third-quarter earnings call Wednesday. “Obviously, a lot going on in the world, a lot going on with the business.”
But when it comes to Hilton’s future, Nassetta said he is feeling “really good about the progress” despite posting a net loss of $81 million for the quarter, a steep fall from $290 million a year earlier. The company’s total revenues are down more than 60 percent year-over-year to $933 million from about $2.4 billion in the third quarter of 2019.

It’s an improvement from last quarter, when the company posted a net loss of $432 million and its revenues down 77 percent year over year.
The optimism comes from Nassetta’s belief that a significant change in attitudes toward travel is around the corner.

The CEO said he believes movement on a vaccine will be coming by the end of the year or early 2021, and once that and winter flu season is in the rearview mirror, “there’s a real opportunity for a step change.”
Hilton is noticing a pick up in business travel, albeit not from the company’s traditional business traveller. Instead, the hotel company has begun experimenting with a new offering, namely office space.
The pilot program, dubbed WorkSpaces by Hilton, where the company rents out hotel rooms as office space rolled out last month.

“A lot of people aren’t back in offices, so they need to have places to congregate, to have meetings,” Nassetta said. “Particularly for people that need to get out of their house and need Wi-Fi and need some space and privacy.”
Though Nassetta noted that the hotel-cum-office space is just temporary, he said it was a good stop-gap measure until typical demand for hotel rooms returns.
“The trick is this isn’t going to last forever,” he admitted. “[But] when we get to the other side of this … we won’t have let those muscles atrophy.”

Hilton is also continuing to construct and convert hotels into Hilton-branded properties. The company opened 133 hotels in the last quarter with a net growth of nearly 15,000 new rooms, or 4.7 percent.
The company’s development pipeline totalled more than 408,000 rooms at the end of September, an 8 percent increase year-over-year. Nassetta said net unit growth for the entirety of 2020 could be as high as 5 percent.
“The construction trades around the world, particularly here in the U.S., were ready to go,” said Nassetta. “Ninety-plus percent of what was under construction when we went into the crisis is back under construction.”

System-wide revenue per available room was down 60 percent for the quarter at about $45 per night with occupancy hovering around 42.5 percent and an average daily rate of $105.87. The uptick compared to last quarter was thanks to a combination of loosening travel and operating restrictions, and an uptick in demand from leisure travellers in the U.S. and China, per Hilton.
During the quarter, Hilton also brought back its furloughed corporate staff and plans on making other cost-cutting measures permanent until demand for events, business and leisure travel bounces back years from now. The company said 97 percent of its hotels were open as of Nov. 2.

“I do believe in my heart of hearts that when we get to the other side of this, we’re a bigger, better, stronger, more efficient higher margin business,” Nassetta said.
 

David Goldsmith

All Powerful Moderator
Staff member

Argent Ventures buying Vornado’s Times Square hotel debt at deep discount​

Argent Ventures paying about $90M for $195M mortgage, sources say

In another sign of the toll the pandemic has taken on New York City’s hospitality sector, the $195 million mortgage on Vornado’s Times Square hotel is being sold at a major discount.
Andrew Penson, the former owner of Grand Central Terminal, is buying the senior mortgage on the 795-room Crowne Plaza Times Square for about $90 million, sources familiar with the sale told The Real Deal.

That’s roughly 50 percent off the face value of the loan that Deutsche Bank, Morgan Stanley and ICBC provided Vornado to refinance the property at 1605 Broadway back in 2018.

Representatives for Penson’s Argent Ventures, Vornado and the three banks did not immediately respond to a request for comment. A team at Eastdil Secured marketed the debt and negotiated the sale. A representative for the team declined to comment.
Vornado’s 46-story hotel sits in the heart of Times Square, an area that has been hard hit this year. In addition to the hotel portion, the property includes nearly 200,000 square feet of office space and almost 18,000 square feet of ground-floor retail, where tenants include Krispy Kreme’s flagship store.

The hotel draws heavily from tourists visiting the city to see Broadway shows and other attractions. But with the Great White Way mothballed at least through June, the hotel is missing those crowds. The property’s website notes that its concierge service, in-room dining and restaurants are shut down until further notice.

Occupancy figures for the hotel weren’t immediately available, but on Vornado’s most recent earnings call in November, company CEO Steve Roth noted that hotel values have “clearly gone down.”
Penson is best known as the former landlord of Grand Central Terminal. His Argent Ventures purchased the property in 2006 in a deal that included about 1 million square feet of air rights over the train hall, and leased the terminal to the Metropolitan Transportation Authority. Argent sold the air rights in 2018 to JP Morgan, which is using them for its new headquarters at 270 Park Avenue, and sold the land under the terminal to the MTA earlier this year for $33 million.

Hotels across the city are suffering significant declines in valuations. The Surrey Hotel on the Upper East Side recently sold to London’s billionaire Reuben brothers for $65 million — roughly 30 percent off its asking price.
 

David Goldsmith

All Powerful Moderator
Staff member

NYC Hotel Bust Means Even $1,000 Rooms Aren't Profitable​

The borough’s hotel operators don’t expect business volume to exceed an average of 20 percent as shutdown warnings rise.
Bloomberg | Dec 17, 2020

(Bloomberg)—At Manhattan’s hotels, there are few signs of the festive fervor that the holiday season typically brings.
The Plaza is shuttered. So is the St. Regis, whose famed King Cole Bar is usually a source of Christmas cheer. Even the hotels that are open are watching occupancies drop as surging Covid-19 cases put weary travelers on guard.

“We don’t expect business volume to exceed 20%,” said Francois-Olivier Luiggi, general manager at the Pierre, across Fifth Avenue from Central Park. “This seems to be the most anyone can do on average.”
A dreary holiday season is the latest blow in a year that is widely viewed as the worst ever for the modern hotel industry. Across the U.S., revenue per available room -- a gauge of price and occupancy -- fell 57% last week, the second-steepest year-over-year decline since June, according to lodging-data firm STR. Things were even worse in New York, where the measure plunged 86% to $45.39.
That’s deepening a crisis for hotels at a time visitors usually flock to Manhattan to shop Fifth Avenue, admire the Rockefeller Center tree and and cram Times Square for the New Year’s Eve ball drop. And as Mayor Bill de Blasio warns New Yorkers to gird for another shutdown, the city’s $70 billion tourism industry stands to take an even bigger hit from the pandemic.

Already, indoor restaurants are closed and winter weather is curtailing many outdoor activities. Even as a coronavirus vaccine offers promise of a recovery, hotel owners are struggling to cover fixed costs while key sources of demand -- from Broadway patrons to corporate travelers -- remain at home.
Last week, the Marriott Marquis, one of New York’s largest conference hotels, said it was permanently terminating more than 800 workers. Others may soon follow. Expenses for debt service and property taxes are mounting, and a recent labor ruling saddled owners with hundreds of millions of dollars in severance payments.

“We’ll have a comeback eventually, no question,” said Vijay Dandapani, chief executive officer of the Hotel Association of New York City. “But I would not be shocked if north of 25% of hotels close permanently.”
The city’s famed luxury hotels face a unique set of challenges. They’re more expensive to run, and they’re loathe to lower prices too far and spoil their air of exclusivity. Operating during a pandemic means finding ways to convince customers that they’re providing value, even while safety concerns mean limiting amenities, from room service to spa hours.
Many hotels have preferred to stay closed, saving money on staff and utilities and using the opportunity to make renovations. Renowned Midtown properties like the Peninsula and the Mandarin Oriental have been shut for months. The same goes for the Edition, near Madison Square Park.
The Pierre, which started accepting bookings in September after a months-long hiatus, has been experimenting with promotions to lure well-to-do travelers. One offer encourages families to reduce exposure to strangers by booking an entire floor, while another includes a $500 gift card to Saks Fifth Avenue.

‘Toughest Year’

Those that have reopened face challenges turning a profit, despite catering to a customer base that is willing to pay high rates for posh accommodations. The Baccarat Hotel has been commanding average daily rates of about $1,000 for rooms and $5,000 for suites since reopening in October after an extended shutdown.
Occupancy rates are down, though, and while the hotel is covering some fixed costs, it’s not making a lot of money, said Arash Azarbarzin, president of SH Hotels & Resorts, which operates the Baccarat. Instead, reopening has helped management gain insights into customer behavior that may help the company plan for the highly uncertain year ahead.

“This has been the toughest year in my career to predict what’s going to happen,” Azarbarzin said. “Forget 2021, but just forecasting the next two weeks is a challenge.”
When the managers of the Four Seasons New York Downtown began planning to reopen the hotel in September, occupancy rates were hovering around 40% on weekends. Now, demand has plummeted. Bookings are coming at the last minute, adding challenges to setting staffing levels and keeping the pantry stocked.
General Manager Thomas Carreras is still optimistic. He’s hoping that guests coming into Manhattan for holiday shopping will prefer SoHo boutiques over Midtown department stores, making his hotel’s location a selling point.
And perhaps this unusual holiday season will help the property create memorable experiences to form long-term bonds with guests -- especially since low occupancy rates mean staff can pay the clientele extra attention.
“We have turned into a small boutique hotel, and we know each of our guests by heart,” Carreras said. “In many ways, it’s the best time to look after people.”
 

David Goldsmith

All Powerful Moderator
Staff member

Hilton Times Square owner: “Take my hotel, please”​

Struggling owner opted to walk away from 478-room hotel

The owner of the Hilton Hotel in Times Square has given the keys to the hotel back to its mortgage holder.
The hotel’s owner, California-based REIT Sunstone Hotel Investors, surrendered the 44-story property to Torchlight Investors, the special servicer. The lender and the borrower signed a lease in lieu of foreclosure, which allows the hotel owner to hand the keys back to its lender, according to property records filed in December.

Torchlight and Sunstone did not immediately respond to requests for comment.

The 478-room hotel, located at 234 West 42nd Street, was one of the biggest casualties of the pandemic-driven downturn in the hospitality sector. In September, Sunstone notified the state of its plan to lay off 200 employees because of the facility closing, and in October, it permanently closed its doors.

But the hotel was in trouble before the pandemic hit. Its debt service coverage ratio, a metric that indicates a property’s ability to cover its mortgage and interest expenses, had dropped to perilously low levels as of late 2019.


As The Real Deal previously reported, the hotel’s loan had been underwritten assuming net operating income would be 2.16 times its debt service. By September 2019, it had dropped to 1.03 times.
Then came the pandemic and its related lockdowns, which caused hotel occupancy in New York to plummet. By April, Sunstone had stopped making payments on its mortgage, which is securitized in a CMBS deal. The loan’s current balance is $75.8 million, according to Trepp.

The REIT also stopped paying rent on its ground lease as of March, according to the company’s most recent quarterly filing with the U.S. Securities and Exchange Commission. In the filing, the company said the REIT was considering a “negotiated transfer” of the hotel to either its lender or the landlords.
The hotel is now valued at $61 million, less than 25 percent of its 2010 valuation of $246 million.

Struggling hotels are increasingly turning keys over to lenders as the pandemic continues to ravage the hospitality industry. A November report from Trepp found that the proportion of hotel loans in special servicing has remained above 25 percent. Meanwhile, hotels that have been reappraised since March have on average seen their values sliced by nearly 30 percent.

“Major players in the hotel segment have been forced to reassess the value of their properties and have shown an increasing willingness to give up ownership,” according to the Trepp report.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member
when the tide goes out we see who is swimming naked. I expect more of these stories in 2021 as the insolvency phase of this process plays out. Never good to see, but is how the system gets purged so a reset can setup longer term sustainable recovery in the sector
 

David Goldsmith

All Powerful Moderator
Staff member
Novotel Times Square Hotel Closes Due to COVID-19
The Novotel New York Times Square hotel closed its doors permanently days before Christmas due to the coronavirus pandemic and laid off its entire staff, state records show.

The 480-room hotel at 226 West 52nd Street closed on Dec. 23, citing the “hotel owner’s decision to cancel the management contract” and cut its 225 employees, according to a state WARN Act notice made public on Wednesday.
A spokeswoman for Novotel’s manager, Accor did not respond to a request for comment. A spokeswoman for owner, Millennium & Copthorne Hotels, said in a statement late Wednesday night that it planned to later reopen the property as a hotel under its own M Social New York brand.
Paris-based hospitality giant Accor built the 35-story Novotel in 1984 and owned it until 2012, when it sold the spot to Apollo Global Management and Chartres Lodging Group for about $94 million, The Real Deal reported. As part of the deal, Accor stayed on as the manager and the new owners embarked on a $118 million renovation of the property.

Apollo and Chartres sold the hotel two years later to London-based Millennium & Copthorne Hotels for $273.6 million in an all-cash deal, with Accor remaining on as the manager, Commercial Observer previously reported.
As the coronavirus pandemic kept travelers confined to their homes, the Novotel first shuttered its doors on March 15 and furloughed 137 of its workers, according to the WARN Act filing. It later laid off eight employees in July.
The Novotel joins a growing number of hotels around Manhattan that have permanently shuttered due to COVID-19. In September, the 44-story Hilton Times Square closed, and the next month, the landmarked Roosevelt Hotel in Midtown did the same.
As of September 2020, the latest numbers available, 58 percent of Manhattan’s 129,000 hotel rooms were still closed with 2,700 expected never to reopen, according to a report from PricewaterhouseCoopers.

Hotel occupancy fell to 32.5 percent for the week ending on Dec. 26, its lowest level since early May, and a 33 percent drop from the same time in 2019, according to STR.
The city went through a hotel building boom in recent years — growing from about 97,500 rooms in 2015 to about 138,000 before COVID hit — leaving many concerned about what will become of the large, empty buildings once closed.
“They employ lots of people, and they are a big part of our economy,” Councilman Keith Powers, whose district includes hotel hot spot Midtown, previously told CO. “They’re a foothold to the middle class for many New Yorkers. They’re a sector we rely on.”
Update: This story has been updated with a statement from owner Millennium & Copthorne Hotels saying it will reopen the hotel under a new brand.
 

John Walkup

Talking Manhattan on UrbanDigs.com
From the article: "A deluxe king room at the Penn Plaza Marriott now asks $89 a night, according to Expedia." Have to think this won't last long and that the 'special situations' folks are standing by.
 

David Goldsmith

All Powerful Moderator
Staff member
One-third of NYC hotel rooms have been wiped out by COVID-19 pandemic
The COVID-19 pandemic has been hell on New York’s tourism-heavy hotel industry.
New data released by the Department of City Planning showed 146 of the city’s 705 hotels have closed — or 20 percent.

The closures account for 42,030 or one-third of the city’s 128,000 hotel rooms.
The hotel industry won’t fully recover to pre-pandemic levels until 2025, the analysis said.
But the head of the New York City Hotel Association said the industry’s depression is worse than portrayed by the city.
About 200 hotels have closed, said Vijay Dandapani, the hotel association executive director.
“We have hotels closing every day,” Dandapani said. “We fell off a cliff.”

He said the Big Apple’s hotel industry is in the worst shape of any municipality in the country and may not see a recovery until 2026.
Dandapani said many hotels — facing a daunting cash crisis and unable to pay their property tax debt and mortgage payments — will never reopen.
His group is launching a campaign to persuade Mayor Bill de Blasio to waive or reduce the 18 percent interest penalty on hotels that are unable to pay their property tax bills.
Amid the tumult, the de Blasio administration is pushing ahead with a controversial zoning law change that would require all newly proposed hotels citywide to go through the lengthy land-use review procedure to obtain a special permit to operate. City Planning officials released the sobering number of hotel closures during the opening of a public hearing on the proposal last week
Advertisement

The zoning change is a head-scratcher given the crisis in the hotel industry, Dandapani said.
“I don’t know what person in his right mind will be opening a new hotel in the city,” he said.

The measure is supported by the powerful Hotel Trades Council, which is seeking to use its clout to block the opening of hotels that don’t use union labor, critics claim.
The HTC has pumped more than $600,000 into the campaign coffers of 51 current or aspiring City Council members, some of whom testified on behalf of the zoning rule change last week, on top of support for de Blasio.
Invoking ULURP would give communities more say and the Council veto power over the location of proposed hotels.

“It is no secret that the Hotel Trades Council is a powerful political force in this city and their financial support of of legislators and particularly the mayor is the only reason we’re discussing this,” testified real estate investor Ben Carlos Thypin.
Legislators who testified in support of zoning rules giving them more say over hotel sitings included Council members Keith Powers, Ben Kallos, Carlos Menchaca and Justin Brannan, as well as Assembly members Carmen Delarosa and Emily Gallagher and state Sen. Brad Hoylman.
“In too many cases when build without proper review new hotels cause quality of life problems for nearby residents,” said Hoylman (D-Manhattan).”
Other supporters argued the stricter review will prevent hotel owners from misleading the community with bait and switch tactics that turn their facilities into homeless shelters or cut-rate flophouses that turn into havens for criminals — such as the Umbrella Hotel in Kew Gardens, where a 20-year-old man was shot and killed on New Year’s Day.

The murder provoked community outrage, with de Blasio ordering the hotel be shuttered.
De Blasio previously denied that his support of the hotel zoning change was tied to HTC’s backing of his ill-fated presidential campaign.
Mayor Bill de Blasio speaking to reporters on Jan. 26, 2021.Ed Reed/Mayoral Photography Office
Its 40,000 members accounted for nearly 70% of Hizzoner’s 6,700 individual donations, an analysis by The Post and the Center for Public Integrity showed.
A spokesman referred The Post to the mayor’s prior statements.
“We’ve got so much development in our city and some types of development have disproportionate impacts on communities. When a hotel comes in, you’re talking about a lot more activity, vehicular traffic, folks staying in the hotel. It has an impact that’s different than a residential building for example,” de Blasio said.
The Hotel Trades Council defended its support of the zoning change and noted it has worked closely with City Hall and council members for years to advance it.
“The Union has worked with the past two mayors and three City Council speakers to push for progress on a balanced zoning plan that ensures sustainable development and job growth opportunities. The last thing we need in this moment is Wild West unchecked developer expansion that will cannibalize the industry and do further harm to revenue generating hotels, New York City communities, and middle-class jobs,” said HTC president Rich Maroko.
 

David Goldsmith

All Powerful Moderator
Staff member
Soho Grand owner walking away from struggling hotel

Leonard Stern’s Hartz Mountain Industries wants to hand keys over to hotel’s lender​


Another New York City hotel owner is checking out.
Billionaire Leonard Stern’s Hartz Mountain Industries wants to hand the keys over to its lenders on its Soho Grand and Roxy Hotels in Lower Manhattan, according to notes on the hotels’ securitized loan.

Hartz Mountain “no longer wants to fund the losses” at the properties, and has requested to transfer the hotels to the special servicer on the $110 million loan via a deed-in-lieu of foreclosure, according to a watchlist note from January.

Tony Fant of GrandLife Hotels, the company that operates the Soho Grand and the Roxy, declined to comment. A representative from Greystone, the special servicer on the securitized mortgage, did not immediately respond to a request for comment.
Hartz Mountain hasn’t missed a payment on the interest-only loan and is current through January, according to notes on Trepp. But the hotel’s financials were severely impacted by the Covid-19 shutdown and its ability to cover its debt service has decreased significantly.

When Stern’s real estate company built the 352-room Soho Grand at 310 West Broadway in 1996, it was the first boutique hotel in the neighborhood. The company built the 203-room Roxy Hotel at 2 6th Avenue in Tribeca in 2000.
Hotels have taken a beating in the pandemic as tourists and business travelers have largely stayed away from the city. And Hartz Mountain wouldn’t be the first owner to simply throw its hands up and walk away from a struggling property.

Earlier this year, the California-based REIT Sunstone Hotel Investors voluntarily surrendered control of the 478-room Hilton Times Square Hotel to special servicer Torchlight Investors.
As of the fall, 80 percent of New York City hotels backed by $4 billion in securitized mortgages were showing signs of distress.

Hotel Association of New York City CEO Vijay Dandapani at the time said it would be a “great” outcome if half of the city’s 640 hotels survive the pandemic.
 

John Walkup

Talking Manhattan on UrbanDigs.com
Hartz Mountain hasn’t missed a payment on the interest-only loan and is current through January, according to notes on Trepp. But the hotel’s financials were severely impacted by the Covid-19 shutdown and its ability to cover its debt service has decreased significantly.
Wow - I would love to be a fly on the wall as this was decided.
 

David Goldsmith

All Powerful Moderator
Staff member

US hotel market had worst year since the Great Depression​

NYC, Boston, Chicago and Hawaii saw biggest drops in revenue per available room​

The coronavirus pandemic made 2020 the worst year for the U.S. hotel market since the Great Depression, when occupancy rates dipped below 40 percent. In 2020, the overall occupancy rate was 41.6 percent.
However, the impact varied significantly by geographic location and the type of hotel, according to a new report from CBRE Research.

New York City was the hardest-hit market of all, with revenue per available room (RevPAR) dropping 77 percent year-over-year. Other gateway cities like Boston, Chicago, San Francisco and Seattle, as well as air travel-dependent Hawaii, saw RevPAR declines of more than 70 percent.

A drastic drop in group demand, including business and convention-related travel, contributed to the decline, as did an 80 percent drop in inbound international travel to the U.S. amid ongoing travel restrictions.
“Demand cannot return to pre-Covid-19 levels without group demand returning,” the CBRE report notes.

Meanwhile, secondary markets like San Bernardino, CA and Jacksonville, FL saw more modest year-over-year declines, at around 26 percent and 38 percent, respectively.
“These less-dense markets benefited from their ability to better maintain social distancing and from their drive-to destination appeal,” CBRE analysts wrote.

In terms of hotel chain scale, the overall tendency was for higher-priced chains to see larger declines in room rates. But “luxury” properties, at the very top end of the market, were somewhat less impacted than “upper upscale” ones, according to CBRE data.
The type of hotel also played a role, with convention hotels unsurprisingly the hardest hit of all.

In terms of EBITDA, most hotels saw year-over-year declines of more than 100 percent — in other words, they lost money. But there were two exceptions.
“Only resort and extended-stay hotels generated earnings from operations in 2020, benefiting from their leisure orientation, likelihood for longer stays and individual kitchen facilities,” the report notes.

While hotel occupancy is now at a historic low, occupancy rates just before the pandemic had risen to a historic high of more than 65 percent — a level not seen since the 1940s, as the graph below shows.
Hotel-Occupancy-since-1930-705x358.png
 

David Goldsmith

All Powerful Moderator
Staff member

Underwater hotel owners are walking away from their properties​

Nearly 25 % of hotel CMBS loans — roughly $21 billion — were in special servicing as of January​

With its hotels business battered by the pandemic, Ashford Hospitality Trust took a cold, hard look at its portfolio and came to a sobering conclusion: The REIT was simply going to walk away from some of its struggling properties.
“While we take no joy in handing back assets to our lenders, we do hope it demonstrates that we are willing to make hard decisions that are in the best interest of our shareholders,” Ashford CEO Rob Hays said on the company’s late-October earnings call.

Dallas-based Ashford, which was facing the threat of insolvency before it landed a $350 million lifeline right before the new year, gave up a portfolio of 13 hotels with more than 2,000 rooms as it struggled to stem losses and work out forbearance agreements to avoid defaults.
view

And the company warned it could soon walk away from even more properties.
Ashford isn’t the only investor making that difficult decision. Commercial real estate owners — particularly those in struggling sectors such as hotels and shopping malls — are giving up on their debt-laden properties rather than go through the foreclosure process.

It’s reminiscent of the housing crash of 2008, when homeowners who took out big loans suddenly found that their houses were worth less than their mortgages and simply walked away from the properties. There was even a term — “jingle mail” — for owners who dropped their keys in an envelope and mailed them back to the bank.

And although the number of hotel and mall owners walking away now hasn’t reached that level, it’s a threat to consider as the mark that looms large, as many properties still struggle financially with no end in sight nearly a full year into the pandemic.
In particular, the devastation on the lodging industry over the past year is clear: As of January, nearly 25 percent of hotel CMBS loans — roughly $21 billion — were in special servicing, according to Trepp.

No reservations

In December, California-based REIT Sunstone Hotel Investors handed over control of the 478-key Hilton Times Square to the property’s special servicer, Torchlight Investors.
The Manhattan property was in trouble even pre-pandemic, and things were set to get worse with an impending rent hike on its ground lease and its $75 million mortgage coming due this fall. Sunstone surrendered the property in a deed-in-lieu of foreclosure. It also made a $20 million settlement payment, according to servicer notes on the loan.

Other properties seem headed for a similar fate. In October, there were nearly 100 loans totaling $3.9 billion in outstanding CMBS debt where the borrowers indicated they would be willing to hand back the keys, according to Trepp.

Homeowners may have emotional attachments to their houses that make walking away a difficult decision, but experts say that commercial owners are using the cold logic of dollars and cents.
“It’s really just a rational economic decision,” said Wendy Silverstein, co-founder of loan-workout company Silver Eagle Advisory Group. “They’re not going to be throwing good money after bad.”

In addition to the bottom line, hotel owners also have to consider their reputations with lenders when it comes to how they act in these tricky situations.
Borrowers have the option of forcing their lenders to go through lengthy and costly foreclosures, but that could be perceived as strong-arming. Owners who choose not to burn bridges with their lenders can preserve relationships for the next time they want financing, said Caroline Harcourt, an attorney at Pillsbury Winthrop Shaw Pittman who works on distressed real estate loans and restructurings.

“There’s a reason why you want to be known as someone who says, ‘Here, I’m not going to make a fuss. Take the keys,’” Harcourt said.
But some lenders can be hesitant to take properties back.
Banks prefer not to own real estate, and that makes them more willing to negotiate agreements with owners that allow them to hold onto properties. And when a bank does take back a piece of property, it helps to have a quick turnaround strategy.

Wells Fargo, for example, took control of the 239-room Fairfield Inn & Suites at 325 West 33rd Street in Manhattan last year through a deed-in-lieu from a subsidiary of the Hawaii-based investor Shidler Group. The bank turned right around and sold the property — along with its $51 million outstanding loan — to Rhode Island-based Magna Hospitality for roughly $57 million.

Unlike banks, though, CMBS special servicers are required to take over distressed properties.
And if a lender is one of the real estate operators that in recent years became more active on the debt side — particularly those in loan-to-own situations — chances are that an owner can be sitting at the negotiating table with someone who has designs on taking over the real estate.

In some cases, a lender will refuse to take back a property, which results in a standoff with an owner who has given up.

Silver Eagle ’s Silverstein said that when borrowers take out their loans, they have to spell out in writing the circumstances under which they can hand back the keys.

Smart borrowers, Silverstein said, make sure they’re covered. But a downturn usually exposes a few that forgot to read the fine print.
“Every cycle, someone seems to learn that lesson anew,” she said.

Wiggle room

Owners with properties in default are not completely out of options.
Some states have put foreclosure moratoriums in place to prevent lenders from taking properties that have fallen behind due to government-imposed lockdowns. And even under normal circumstances, foreclosure can be a drawn-out process.

In New York, for example, the average foreclosure case takes more than a year.
But in cases where the outcome is inevitable — the owner giving up a money-losing property at a foreclosure auction — handing over the keys to the lender through a deed-in-lieu can be a money saver.
“It’s a cheaper and quicker process than allowing a lender to foreclose on an asset,” Anne Lloyd-Jones, of the hospitality consulting firm HVS, wrote in an email.

But that doesn’t always mean a deed-in-lieu is the path of least resistance.
If a property has mezzanine financing, Lloyd-Jones added, a deed-in-lieu won’t wipe out subordinate liens or clear away unpaid property taxes and franchise fees. Only a foreclosure would allow the lender to get a “clean title.”

“So even though a lot of owners are voluntarily giving their keys back, sometimes the lenders are still going through the foreclosure process rather than deed-in-lieu,” Lloyd-Jones said.
On the retail front, more than 15 percent of loans were in special servicing in January, a slight improvement from the previous month. Brookfield Property Partners — among the country’s largest mall owners — recently handed over two properties to its lenders and has several others that are at risk, according to a recent analysis of Trepp and Fitch data by TRD.

During Brookfield’s fourth quarter earnings call in early February, CEO Brian Kingston said that there are about 20 properties in its core retail portfolio where the malls are worth as much as the debt, and the company is considering all its options, including a deed-in-lieu giveback.

Extended stay

Strategies around distressed properties will be shaped primarily by time: How long will the economic recovery take, and do owners have enough capital to keep their hotels and malls afloat until things get better?

The vaccine rollout, which has been chaotic at times, has been improving as supplies increase, leading some in the real estate industry to express hope that things are headed back on track. Others still aren’t there yet.
Ronald Dickerman, president of Madison International Realty, said the people he knows who have been vaccinated are still behaving the way they did pre-vaccine, and they still aren’t returning to offices or traveling.

“Covid is going to be around for years,” he said.
Hotels certainly have a long way to go before they get back to pre-Covid levels. Occupancy across the U.S. was just north of 40 percent in the last week of January, according to hospitality data firm STR. Revenue per available room, a benchmark for measuring a hotel’s performance, was at slightly more than $36, about 50 percent below last year.

Chris Woronka, a hotel REIT analyst at Deutsche Bank, said that borrowers and owners have been playing something of a waiting game until it becomes clear how much economic pain each side will have to swallow.
The longer it takes, he said, the harder it becomes to keep throwing funds into money-losing properties.

“The question is, how long are you willing to wait?”
 

David Goldsmith

All Powerful Moderator
Staff member

Long Way to “Normalcy”: When Will Americans Return to Flying for Vacation and Business?​

Airlines, meanwhile, face pent-up demand of the wrong kind.

Everyone is waiting for Americans to start flying again to get back to “Normalcy,” as it’s now called. So where are we now? On average over the past seven days, 1.09 million passengers per day passed TSA checkpoints at US airports, the highest since the collapse of air traffic a year ago, eking past the beaten-down holiday period at the end of 2020 and early 2021.
It was still down by 53.2% from the same week in 2019, a tad worse than the year-over-year drop during the holiday period. One year after the collapse of air travel, the hoped-for V-shaped recovery still looks dismal. But the trends, if you squint just right, show slight improvements in recent months:
US-TSA-screenings-daily-2021-03-11-yoy-percent-change-7-day-avg-.png

International travel on US air carriers hit hardest.​

The Department of Transportation released its preliminary data on air travel today, as reported monthly by the airlines to the Bureau of Transportation Statistics (BTS), which provides more detail, but lags a little behind: In January, domestic air travel, as measured by the number of airline passengers, was down 63% year-over-year; and international travel on US air carriers was down 68%.

The BTS, beyond the preliminary data for January, also released detailed data for December, covering all US air carriers and all US airports. In terms of “revenue passenger-miles” – the number of passengers and miles flown: total air travel in December fell year-over-year by 66% to 30.8 billion passenger-miles flown:
  • Domestic: -62.1% (25.1 billion passenger-miles)
  • International: -77% (5.7 billion passenger miles):
US-BTS-passenger-revenue-miles-2021-03-12.png

Business travel may not return to Normalcy for years, if ever.​

Business travel, according to numerous travel industry and corporate contemplations, will eventually resume, but only for situations where contractors, employees, or executives really need to be present in person. The rest of business travel, along with the expenses and loss of time, has been replaced by video conferencing, and the results have been good, and corporate cost cutters and efficiency experts are loving it, and business travel’s normalcy will look vastly different — meaning lower – than it did before.
Business travel, by its nature of being expense-account travel that someone else pays for, was the most lucrative end for airlines. Business travelers pay higher fares, often full fares so that they can be cancelled, and they often fly in business class or first class, and they’re far less likely to shop for the cheapest ticket on the cheapest flight. In terms of revenues for airlines, business travelers will be sorely missed.

Hopes for leisure travel are higher.​

The hopes for leisure travel – to go on vacations or to see friends and family or to maintain long-distance relationships – are higher, and there is even talk about pent-up demand, with people flying on vacations three times a year instead of twice, for example.
But leisure travelers, to the exasperation of the airlines, are assiduous fare-shoppers who will try everything in the book to get the cheapest acceptable ticket to where they’re going. And the internet makes comparison shopping easy.

Pent-up demand of the wrong kind.​

In addition, many people have ended up with unused tickets to international destinations from last spring when these flights were cancelled amid widespread restrictions on crossing borders, and they haven’t gotten their money back from the airlines. Instead they got “credits” to be used in the future, or they have the ability to use the ticket in the future without change-fee.
These pent-up travelers with such already paid-for but on-hold arrangements are hoping to use these credits or tickets to eventually fly to Japan (such as my wife), China, Europe, and a million other destinations.
When this wave finally starts rolling into airports — after border restrictions and impossible-to-navigate inconveniences, such as long quarantine requirements, are lifted – it will show up in travel data, such as the TSA’s checkpoint screenings. But for airlines, this wave of pent-up travel demand means zero revenues and cash-inflow, because that was taken in a over a year ago, but lots of expenses and cash-outflow since they will then have to provide the services. Pent-up demand of the wrong kind.
It will be interesting to see what kinds of restrictions US air airlines will impose on people with these credits or tickets that they’d paid for over a year ago — such as making only a few seats available for them per international flight, and perhaps only middle seats in the back?
 

David Goldsmith

All Powerful Moderator
Staff member

Sluggish hotel market showing signs of life​

Occupancy was at 49% in week ending March 6​

Hotels are receiving an injection of new guests as more Americans receive the Covid-19 vaccine and consider traveling again.
U.S. hotel occupancy hit 49 percent in the week ending March 6, its highest level since last August, the Wall Street Journal reported, citing data from STR. That’s down from 65 percent in March 2020 before the effects of the pandemic were fully felt.

The uptick in travel is also prompting renewed interest in hotels by some of the largest institutional investors.
Blackstone Group and Starwood Capital Group announced this week that they will acquire Extended Stay America for $6 billion, according to the Wall Street Journal. The firms are betting on an increase in business travel.

Stock indexes tracking hotel brands and hotel REITS jumped 22 percent in February, according to the report.
In another positive sign, more hotels are reopening. Of hotels tracked by STR, only 2.5 percent of U.S. rooms were closed, a drop from 18 percent last April.
 

David Goldsmith

All Powerful Moderator
Staff member

Mark Gordon’s Tribeca Associates walks away from FiDi Moxy Hotel​

Lender AllianceBernstein takes control of 298-room hotel​


The owner of Moxy Hotel in the Financial District has handed the keys back to its lender.
Led by Mark Gordon, Bill Brodsky and Elliott Ingerman, Tribeca Associates, which opened the 30-story hotel at 143 Fulton Street in 2018, transferred the ground lease to AllianceBernstein, according to public records. The lease was valued at $108.8 million in the transaction.

Tribeca Associates did not immediately respond to email requests seeking comment. AllianceBernstein declined to comment.
view
view

Tribeca acquired the ground lease of the site, which also uses the address 26 Ann Street, for $54.1 million in 2015, records show.

When construction was completed and the hotel was about to open, Tribeca Associates landed a $105 million loan from AllianceBernstein. That replaced a $61 million construction loan from Bank of the Ozarks, now known as Bank OZK, and provided the owner with a $44 million gap mortgage.

The hotel, known as Moxy NYC Downtown, was the second of the Marriott-affiliated Moxy brand to open in New York City, following Lightstone Group’s Times Square location. The brand, which aims to attract a younger clientele, now has four hotels — including Chelsea and East Village sites — in the city.
The 298-room Moxy NYC Downtown is hardly the only hotel to return a property to a lender during the pandemic.

The owner of the Hilton Hotel in Times Square, for example, surrendered the property to one of its mortgage holders in January.
In March, Mack Real Estate — as an $85 million mezzanine loan lender — gained control of a seven-hotel portfolio through UCC foreclosure proceedings against the owners of the Manhattan properties, a joint venture between Hersha Hospitality Trust and Chinese investment firm Cindat Capital Management.

And last month, Yellowstone Real Estate Investments bought the leasehold of the 600-room Watson Hotel at 440 West 57th Street, along with the mortgage backed by the property, for $175 million. Lender HSBC shopped the loan around after Watson’s owner BD Hotels defaulted last year.
 

David Goldsmith

All Powerful Moderator
Staff member
Putting out fires with gasoline. NYC was over-hoteled before the pandemic.

New York Travel Is Down. Plenty of Hotels Are Opening Anyway.​

Despite construction delays and delayed openings from the pandemic, dozens of hotels are on track to open soon​

New hotels in New York City are starting to open with the summer travel season fast approaching, testing a market that has been recovering but still faces serious challenges from Covid-19.
Data firm STR is projecting that 78 hotels with more than 13,000 rooms combined will open in 2021, the largest year for deliveries in recent memory. While many suffered construction delays during the pandemic and might hold back on their openings, dozens of others are still on track to open this year or early next year.
Arlo Hotels is planning to open an upscale hotel near Hudson Yards this spring, which with 489 rooms will be one of the largest lodging properties scheduled to open this year. Properties already opened this year include the 74-room Brooklyn Vybe Hotel and 33-room Baltic Hotel, both in Brooklyn, and the 114-room ModernHaus SoHo in what used to be the James Hotel.
OG-FY804_NYHOTE_4U_20210511092516.png

“New York was, is and always will be in the forefront of developers’ minds,” said Jan Freitag, national director of hospitality analytics at CoStar Group Inc.
Even in the best of times, launching a new hotel in the largest U.S. lodging market can be fraught. At the start of 2020, New York City’s 138,000 hotel rooms oversupplied the market, and it was starting to pressure room rates. Hotel labor costs are also among the highest in the country.

But those issues now look relatively minor after Covid-19’s devastating effect on tourism and travel. Hotel-room occupancy for New York was 53.8% for the week ended May 1, according to STR. That was up slightly compared with the previous week, but trails the national average of 57.1% and is well below the city’s 89.8% rate for that week in 2019, STR said.
Staff has been hard to recruit, in part because new hotels are competing with scores that closed during the pandemic and are now reopening. About 146 properties with 27,998 rooms have reopened, according to STR. Another 115 with 36,830 rooms are temporarily closed, while six have closed permanently.
New York City, like other major markets, has seen some improvement on the leisure-travel side as the vaccine rollout continues. But corporate travel and group business remain subdued and could remain so for much of the year, analysts say.

Less than 37 million tourists are expected to visit the city this year, compared with a record 66.6 million in 2019, according to NYC & Co., the city’s official tourism organization.

That makes opening a hotel in this environment a challenge, and a property could fall well short of the revenue needed to pay for enormous ramp-up and operating costs. The New York Hilton, one of the city’s largest hotels with more than 1,900 rooms, for one has no immediate plans to reopen, a spokeswoman said.
Opening too late runs the risk of many guests developing loyalty with competitors once the market springs back.
“That is the magic balancing act,” said Alex Ohebshalom, developer of the Fifth Avenue Hotel, a 153-room luxury development that completed exterior construction earlier this year but is holding off opening, perhaps until the fall, when Broadway theaters are scheduled to reopen.

The new Fifth Avenue Hotel in Midtown Manhattan, which is expected to open later this year.

New employees need to be trained in Covid-19 protocols, such as how to handle guests reluctant to wear masks. The Mandarin Oriental at Central Park reopened in early April. Its staff hands unmasked guests an envelope with the hotel logo and “We Care” on the outside and a mask on the inside. “It’s worked every time,” said Susanne Hatje, general manager.

Managers of the Arlo said that guests can opt to reuse the same sheets, so housekeepers will stay out of their rooms. That has been a preference of many guests at the chain’s other hotels during the pandemic. “We have lived with this,” said Oleg Pavlov, Arlo chief executive of Quadrum Global, the developer of the Arlo chain.

New York’s hotel market enjoyed strong demand and rising rates during the second half of the past decade. But it was showing signs of weakness, partly because of oversupply, in the year leading up to the pandemic. In early 2020, mortgage defaults by New York hotel owners were on the rise, and average daily rates were well off peak levels.
The pandemic delayed the reckoning the market was facing with the thousands of rooms under development, according to hotel owners and analysts. Projects like the Six Senses New York, the first North American property of a Thailand-based ultraluxury hotel brand, suffered construction delays. The company now expects to open in New York in 2022.
“We’re glad we didn’t open into the heart of the pandemic,” said Neil Jacobs, Six Senses chief executive. “On the other hand, the bills still need to be paid and the debt needs to be serviced.”

Startups, governments and nonprofits are racing to create so-called “vaccine passports,” or digital health passes aimed at helping people travel and safely move around in public. WSJ explains what it would take to get a global digital health pass system off the ground.
 

David Goldsmith

All Powerful Moderator
Staff member
I don't think owners will simply "pass along" savings to consumers rather than pocketing it. "Trickle down" economics has been disproven for 3 decades. Rather than the promised boom in Research and Development plus increased wages for workers from the 2017 trillions $ corporate tax breaks what we actually saw was stock buybacks (and later requests for government bailouts when the pandemic hit).

If you want to say these businesses got hit hard by the pandemic and we want to throw them some money at taxpayers' expense then go ahead and say that. But don't act like this is going to benefit others.
De Blasio pauses hotel tax for summer, hoping to boost recovery

Mayor Bill de Blasio Wednesday announced that the city will pause its hotel room occupancy tax rate for a three-month period beginning June 1, 2021, in an effort to resurrect the tourism industry, which has been devastated by the coronavirus pandemic.
According to the city, the leisure and hospitality sector lost an estimated 257,000 jobs from March through Dec. 2020. Eliminating the hotel room occupancy tax, the city said, might incentivize hotels to lower room rates, thereby increasing demand and helping to spur on an economic recovery.
“As our COVID rates continue to plummet and we continue to drive a recovery for all of us, tourists will be coming back to New York City in droves. We’re ready for them,” said Mayor Bill de Blasio in statement after signing the executive order. “By eliminating the hotel room occupancy tax for this summer, we’re accelerating our economic recovery, saving jobs and providing relief for one of our hardest-hit industries.”
The hotel occupancy tax rate currently sits at 5.875%
According to the city, revenue from the hotel room occupancy tax is down about 89% when compared to the last fiscal year.
“COVID-19 has devastated the hotel industry. It is critical that we lend a helping hand to help an industry that is very dependent on tourism, and eliminating the hotel room occupancy for the summer season is a good step,” City Council Speaker Corey Johnson said in a statement.
Leaders within the industry echoed Johnson’s approval as well.
"The temporary occupancy tax waiver is a much needed lifeline that is strongly welcomed by the beleaguered hotel industry,” said Vijay Dandapani, President & CEO of the Hotel Association of New York City.


 
Top