• US Hotel Sales Plummet

    US Hotel Sales Plummet in the Pandemic as Finances Weaken

    May Had the Biggest Decline in Dollar Volume

    Fewer hotels have sold during the coronavirus pandemic, hurt by reduced travel to stop the spread of the virus. (Getty Images)
    Fewer hotels have sold during the coronavirus pandemic, hurt by reduced travel to stop the spread of the virus. (Getty Images)

    The number of U.S. hotel transactions between March and May dropped 48% from the same time last year, according to the Hotel Transaction Almanac produced by hotel research firm STR, which is owned by CoStar News' publisher CoStar Group. Total dollar volume for the three months is down 74% from the billions of dollars of hotel properties trading hands last year.

    Sales stalled when the industry went into a coronavirus-induced tailspin, one that may take years before getting back to 2019 numbers, leaving hotel owners in tight financial shape.

    Group meetings, conventions, sporting events and music festivals vanished during those three months as cities and states took steps to limit gathering sizes and simply shut down their economies. Some 5,300 hotels temporarily closed rather than operate near empty properties at a loss, furloughing staff and cutting executive salaries to lessen the cash burn.

    “The industry went from a position of record profit levels to financial distress in a matter of weeks, creating a shift in focus for those in the transactions community,” Hannah Smith, a senior consultant at STR, said in a statement.

    STR data showed U.S. hotel occupancy bottoming in April at 22% with just those hotels that stayed open rather than close during lockdowns. Since May, hotels have gradually increased occupancy, which has improved average room revenue and average daily rate but the numbers are still far off from last year’s numbers.

    Only 43 U.S. hotels sold in April, down about 86% from the 317 hotels that sold in April last year. May represented the worst month for dollar volume when U.S. hotel deals plummeted almost 94% to $112 million from $1.8 billion in May 2019.

    And what is selling is coming at a discount. Anemic financial performance has put a few owners in the position of selling cheap to improve their situation.

    Reduced Prices

    The Hutton Hotel, an upper upscale property in Nashville, sold for $70 million in cash in June, less than what it sold for seven years ago. It had closed in March and never reopened before selling. Watermark Lodging Trust sold it ahead of its debt maturing on July 1 and now may be selling more assets to stay afloat.

    Hotels selling at a discount probably will drive sales for the rest of the year “as investors look to acquire distressed assets,” Smith said.

    The woes for the U.S. lodging industry are being felt globally. Many hotel operators have made unprecedented cuts to their operations to compensate, drastically changing the amenities and guest expectations. Speaking during the Americas Lodging Investment Summit Summer Update New York online conference, members of the Industry Real Estate Financing Advisory Council said they have yet to see how offerings might return in a more normalized environment.

    “I’m not sure there’s a single answer” in terms of what comes back, said Anthony Capuano, group president of global development, design and operations services at Marriott International. “We’re operating in 140-some odd countries, and the answer to those questions are driven by what consumers want.”

    Kevin Jacobs, chief financial officer for Hilton, agreed: “It will vary market by market. … and it’s going to depend on the standard and service.”

    It’s clearer in the short term, he said, noting offerings like buffets are off the table. But in the medium term, “some [amenities] will come back and others won’t,” he said. “In the long term, the [amenities] that come back are those [guests] will pay for,” he said. “The model has to work. We can’t grow if our owners aren’t profitable.”

    Neil Shah, president and chief operating officer of Hersha Hospitality Trust, said that attitude has been more reflected in this downturn than previous ones, and that “I’ve seen more so than any previous cycle more responsiveness and sensitivity to owners’ plight this time,” adding he’s not sure “how long that will last.”

    Shah said it’s been an exceptionally difficult environment for owners, which is what necessitated many large institutional hotel owners to seek relief through governmental initiatives like the Paycheck Protection Program. He said his company did so before returning PPP funds “once it was clear the narrative had changed and it had to be used as last-resort capital, it was clear as public companies we have other ways to access capital. I wish there weren’t fits and starts. We put a lot of effort into getting that capital, but it was clear it didn’t make sense to take it.”

    Mark Elliott, president of Hodges Ward Elliott, said his company is still selling hotels and getting financing for clients “albeit it’s quite difficult and expensive compared to where we were before.”

    But he noted the vast majority of funding they source is for “runway capital” to help survive the crisis rather than financing for transactions: “Every single hotel has been impacted by the pandemic, every single one,” he said. “Every single hotel needs a capital infusion. Owners can put that capital in, but there has to be capital advanced into the asset. The question then is does that owner have capital and is that owner’s capital more expensive than what they can access in the market?”