Wednesday, October 28, 2020

Real Estate: "Hotel Owners at Major Crossroads Due to Covid-19"

 From The Real Deal:

All of the lights in the Hilton Times Square have been pitch black for weeks — one of several ominous signs for hotel owners in New York and other large cities around the country.

The owner of the 478-room property, just blocks away from Broadway and Bryant Park, disclosed plans to the state’s Labor Department last month to permanently shut its doors and lay off 200 employees.

The real estate investment trust Sunstone Hotel Investors had been struggling to make payments on a $77 million mortgage even before March, and the 44-story building became one of several name-brand hotels to permanently close this fall. The Hilton Times Square was soon followed by the Courtyard by Marriott in Herald Square and the Roosevelt Hotel on East 45th Street, which shuttered after nearly a century of business.

On the other side of the country, the Luxe Rodeo Drive Hotel in Beverly Hills also closed for good, after having embarked on a full renovation just before Covid hit. Owner Luxe Hotels told the Los Angeles Times it’s now considering “alternative options” for the high-end hotel.

Seven months into a pandemic that has hit the hospitality and retail sectors the hardest, many hotel owners around the U.S. are at a crossroads, despite an uptick in occupancy after most city and state shutdown orders were lifted. Some of the more highly leveraged owners are now deciding between repurposing their properties, selling at deep discounts, throwing the keys back to their lenders or buying themselves more time if they can afford to.

But forbearance agreements are quickly expiring, and temporary layoffs are becoming permanent. Without a federal bailout, an estimated 38,000 U.S. hotels could close permanently, while another 28,000 are at risk of being foreclosed on, according to the American Hotel & Lodging Association.

At the same time, from California to South Florida, hotel owners face growing threats from natural disasters, including fires, storms and flooding. One Napa Valley resort reportedly suffered extensive damage from California’s wildfires last month.

After a tumultuous 12 months, average hotel occupancy nationwide was at the halfway mark in September, down about 30 percent year over year, according to preliminary monthly data from hotel research firm STR. Average revenue per available room in New York, meanwhile, tumbled about 70 percent year-over-year to $53 a night from $182 in the same period. In California, RevPAR fell by nearly half to $71. In Florida, it dropped by about 30 percent to $46.

Suzanne Amaducci-Adams, a partner at the Miami-based commercial law firm Bilzin Sumberg, said many hotel owners have become paralyzed by the potential for new shutdown orders as Covid starts to resurge in major markets.

“I think people just don’t know what to do at this point,” said Amaducci-Adams, who runs her firm’s real estate practice. “Borrowers have been using their savings, whatever available cash they have on hand, and now that money has pretty much run out. Hotels are holding their breath.”

Still, distress always creates new opportunities, and there are plenty of buyers in the market, including Starwood Capital Group co-founder Barry Sternlicht and the British billionaire brothers David and Simon Reuben of Reuben Brothers....