fbpx Commercial Real Estate Services & Property Management | SVN Commercial Advisory Group
(941) 387-1200

Because of devastating hurricanes, Florida hoteliers have experience in navigating massive drops in demand and extended recovery periods.

At previous pricing levels, hotel occupancy above 60% typically indicated break-even. And with staff being a hotel’s costliest operating expense, massive layoffs have been no surprise.

Meanwhile, in many Florida cities, the number of new hotels in the pipeline is the highest on record. The South Florida tri-county area has 154 new hotels in the pipeline, Orlando has 99 and the Tampa Bay area has 47.

So what does this all mean for hoteliers, particularly those in Florida? Here are some thoughts:

Compared to many states, hotels in Florida will bounce back relatively quickly.

Except for a brief period after 9/11, the US hotel industry has never experienced a dramatic cessation of business like the one caused by COVID-19, but Florida has.

Because of devastating hurricanes, Florida hoteliers have experience in navigating massive drops in demand and extended recovery periods. Many hoteliers in the state know where to find aid and how to get cooperation from their insurers, lenders and even apply to the SBA for disaster loan assistance. Simply put, COVID-19 more closely resembles a natural disaster than a major economic downturn, and Florida hoteliers are better prepared than most to deal with it.

Lenders on new hotel projects have pushed the pause button, while hotel owners scramble to modify existing loans.

As an example, a regional lender recently granted a three-month deferral of principal and interest payments for a hotel owner. Also, the loan agreement called for a debt-service coverage ratio of 1.35, but the lender waived the requirement for the first and second quarters of this year and reduced it to 1.0 for the third and fourth quarters.

Lenders will be more flexible with loan workouts this time around vs. 2008.

Commercial real estate lenders who were around in the 2008-2010 downturn remember the hassles and challenges involved with taking over a hotel. In some cases, a special servicer would take over a hotel, only to get a surprise call a week later asking for thousands of dollars to cover payroll. So it makes sense that lenders would want to avoid that scenario again if they can. CMBS loans identify a Master Servicer and a Special Servicer. The Master Servicer collects monthly payments and handles routine matters.

Not surprisingly, hotel sales transactions have been put on pause.

Both buyers and sellers are taking a “wait and see” position, with sales deals being put on ice.

With this combination of motivated sellers and opportunistic buyers, expect to see an active sales environment for hotels after the crisis subsides.

The COVID-19 crisis will have a lasting impact on how hotels do business.

Before the COVID-19 crisis, many hotel chains had already been moving aggressively toward less direct customer contact, primarily for customer convenience.

The number of reservations made via cell phone apps has risen dramatically, and companies like Hilton and Marriott are rapidly incorporating keyless guestroom entry. These same apps will also soon allow guests to control room thermostats and the TV. This, in turn, will eliminate the need for guests to touch remote controls, thermostats or room telephones.

We can also expect to see a dramatic change in the “free breakfast.” For many hotels, what started as an English muffin and a glass of juice has expanded to self-serve areas with waffles, pancakes and omelets. But during the crisis, many hotels have changed to “grab and go” items, with the race for the biggest and best breakfast put on pause.

These changes to the hotel industry will be profound and far-reaching, leading to major changes in demand and a new set of customer expectations. Hotel owners will need to understand their customers, be nimble, and get creative to thrive in what we can expect to be a new normal.

Kent Schwarz | April 14, 2020 at 05:20 AM on Globest.com