Hotels Hurry to Raise Cash as Federal Aid Could End
Some hotel owners are faced with property sales at discounted prices and expensive financing now that federal aid is poised to expire.
Larger hotel owners such as the publicly listed real-estate investment trusts have drawn down their credit lines and sold bonds, which will help tide them over a volatile recovery, said Robert Webster, vice chairman of CBRE Hotels.
But many smaller and private hotel owners are in talks with lenders and are hoping for more government assistance, which has helped fend off foreclosures. Hotel owners got loans through the federal Paycheck Protection Program and some have secured mortgage-payment deferrals for the past few months, but many of these lifelines are running out.
The extended loan-application deadline for the federal program now expires Aug. 8. Thousands of hotel businesses each received loans of $150,000 or more under this program.
Senate Republicans released another coronavirus-relief proposal Monday with more funds for the Paycheck Protection Program and expanded liability protections for businesses, a priority for the hotel industry, said the American Hotel & Lodging Association. Congress still needs to pass this legislation.
The lodging industry’s budding recovery in June now looks impeded by the recent rise in coronavirus cases. U.S. revenue per available room fell 56% for the week of July 12-18 from a year earlier, according to data firm STR.
Watermark Lodging Trust, a Chicago-based hotel owner with properties such as the Ritz Carltons in San Francisco and Philadelphia and the Seattle Marriott Bellevue, is the latest example of how financially strapped owners are raising money however they can.
The real-estate investment trust sold the Hutton Hotel in Nashville, Tenn., for $70 million last month. The 250-room hotel was valued between $90 million to $100 million before the Covid-19 outbreak, according to people familiar with the matter. Watermark sold it for less than the $77.3 million it spent to acquire and upgrade the property, a Watermark 2013 press release said.
Then last week, Watermark raised $200 million from Ascendant Capital Partners and Oaktree Capital Management. To secure this financing, the real-estate investment trust agreed to pay a 12% annual dividend rate.
“Other sales in the near term, to the extent undertaken, may also occur at discounted valuations,” Watermark said in its quarterly report in June. It didn’t respond to a request for additional comment about the sale.
Property consultant CBRE anticipates a 52% decline in average revenue per available room for U.S. hotels this year, and average occupancy of just 41%, down from 66% in 2019.
The low occupancy levels mean that owners need more money to cover fixed expenses such as taxes, insurance, basic utilities and security, especially if the hotel remains closed or is only minimally occupied. Excluding debt expenses, the burn rate of owning a hotel that isn’t open could reach $1,000 a room a month, industry executives say.
Hotel owners have different thresholds for the burn rate depending on average daily rates, and a hotel should typically be able to cover operating costs with a 20% to 25% occupancy, said Skyler Cooper, national director of the hospitality division at Marcus & Millichap, a commercial real-estate brokerage.