There is no sugar coating it.
As the novel coronavirus continues to march through America – bringing a checkerboard of renewed restrictions with it – the reality is that the hotel industry, including its food and beverage component, remains under distress.
According to recent information from the America Hotel & Lodging Association (AHLA), almost two-thirds of the nation’s hotels remain at or below half occupancy, the threshold at which many hotels — on average — can break even and pay their debt service. Also, four out of 10 hotel employees are still not working, making for an unemployment rate in our industry that is at least four times the national average. Unfortunately, business and group travel are one of the largest sources of hotel revenue, and the AHLA says that these guests may not return to 2019 levels again until 2023 or 2024.
Overall, pre-pandemic, travel and tourism contributed $1.5 trillion to the U.S. GDP. On a broader canvas, in 2019, the travel and tourism industry was estimated to have comprised 10% of the global economy.
This impact of the pandemic varies from market to market and to a certain extent by property type. Regional drive-to markets, including resorts and scenic areas, are doing better in many instances; while many larger properties in the downtowns of major cities like New York, Chicago or Houston, often tied into substantial meeting or convention space, are faring more poorly.
For our part, Vesta has been able to maintain liquidity and a quality guest experience for all of its properties. This has not been easy due to the numerous governmental requirements that eliminate expected services. Nonetheless, with careful property management that has included rigid cost control measures; the re-negotiation of service and supplier contracts; working closely with lenders, which can include new loans to support operating expenses, or, where appropriate, modifications to existing debt; and developing new marketing strategies, Vesta’s portfolio of properties is in stable financial condition. We also support industry groups like the COVID Relief NOW Coalition, which is working for Federal action to help businesses and employees in our hardest-hit industries.
We never want to witness anything like this again. However, our experiences and financial and operational discipline in other downturns have helped prepare Vesta for what has taken place. As a result, our hotels have outperformed our competitive set in virtually all markets. Thus, we believe there is light at the end of the tunnel for our industry, particularly with the expected distribution of a safe and effective COVID-19 vaccine across America. Interestingly, a recent study by the University of Florida’s Tourism Crisis Management Initiative found that three-fourths of those likely or very likely to get a vaccine when available were motivated by a desire to travel.
Overall, we believe the pent-up demand for travel by Americans will manifest itself beginning in the latter half of 2021 and continue growing as the year proceeds.
Bullish on Vancouver
Even as the pandemic has proceeded, Vesta has continued to invest in the Vancouver economy. Our seven-story, 150-guest room AC Hotel by Marriott Vancouver Waterfront began vertical construction this October, as a key element of the Port of Vancouver USA waterfront development. Robertson & Olson, a local firm, is the hotel general contractor. The AC Hotel by Marriott is an investment of our Vesta OZ Fund I LLC, which includes tax advantages of the location being in a Federal Opportunity Zone.
We are proud to have been selected to contribute to this important economic and lifestyle waterfront development on our own home turf. We also recently purchased an office building locally that will host our new corporate headquarters.
We expect to see continued interest and investment in quality suburban communities like Vancouver that offer excellent housing stock; attractive tax rates; stable, professional city government and quality public safety and utility services. As long as Vancouver’s local leadership continues to focus on fair and reasonable taxation, safety, cleanliness and a humane way to address, but clean up the homelessness issue, Vancouver will not only survive, but thrive. All of which makes for a great livability quotient.
Also, more generally speaking, to this point, the hospitality industry has been somewhat buffered by the outstanding occupancies and return on investment that it enjoyed in the decade proceeding the pandemic. As a result, many lenders, non-conduit ones in particular, are doing whatever they can to maintain the industry’s stability until profitable days return.
As we emerge from the pandemic, we believe there will be significant appetite for investing in the hospitality sector, especially from well-capitalized opportunistic buyers, including Vesta.
Rick Takach is chairman and CEO of Vesta Hospitality. He can be reached at takach@vestahospitality.com.
