Both CBRE and STR and Tourism Economics are forecasting recoveries for the hotel industry in 2023 or 2024. But for many hotel owners across the country, there are still very rough waters ahead.
A late August report from the American Hotel & Lodging Association offers a sobering nationwide snapshot of a sector with four out of 10 hotel employees nationwide still out of work and 65% of hotels at 50% occupancy or less, below the break-even threshold for most hotels.
Downtown Los Angeles
“When COVID-19 forced a virtual halt to the country, the economy and travel, the hotel industry was one of the first industries affected. Unfortunately, it will also be one of the last to recover,” the report said.
While its report predicts a return to healthy occupancy in 2021 and a recovery to normal occupancy in 2024, CBRE’s findings also detail a rocky present. CBRE projects that revenue per available room for LA hotels will decline 59% this year from 2019 numbers, a drop greater than the ones that followed 9/11 and the 2008 financial crisis combined, said Brandon Feighner, managing director of CBRE Hotels Advisory’s West division.
“The immediate-term pain is very real,” Feighner said.
Even in 2021, when CBRE expects LA to hop on the slow road to recovery, occupancy is only forecast to hit about 58%. It will be a slow climb upward from there on, Feighner said.
As the pandemic persists, news of hotel closures has cropped up in a number of major cities across the country, including Chicago and New York.
Shortly after the pandemic’s closures hit, groups were reaching out to Mike Condon Jr., looking to provide preferred equity or rescue capital, as they anticipated that hotel owners would need help to hold on and keep their assets.
An executive managing director with Cushman & Wakefield who is based in its LA office, Condon Jr. said in the LA area, he has seen more interest on the capital markets side than in buying or selling troubled hotels outright.
“We’re not seeing a lot of assets trading hands. There’s a lot of value still to the hotels,” Condon Jr. said, noting that securing entitlements in LA is tough, construction is pricey, and a good location for a hotel is hard to find.
Condon did offer the caveat that he largely deals with bigger projects that are often owned by institutions large enough to weather the storm and that smaller hotels are likely facing additional difficulties.
For those who work in hotels, there is a concern that one way that ownership is going to try to “weather the storm” is by slashing back-of-house staff, Unite Here, Local 11 co-President Kurt Petersen said. The union’s members include hotel workers, stadium workers and staff for the Los Angeles Convention Center.
“This was a cataclysm to their lives,” Petersen said, speaking of the effects of the coronavirus pandemic and resultant closures.