AAHOA: Hotel owners adjust to new normals

During the final day of AAHOA’s online conference, several owners gathered to share thoughts on how their properties are handling the crisis, and what truly matters in a once-in-a-lifetime downturn. 

Adjusting to the Downturn

Auro Hotels finished the month of June at 31 percent occupancy, the company’s CEO DJ Rama said. For July, however, company was at 41 percent occupancy. “Suppression of the virus equals recovery,” he said, noting that without a clear end in sight, the forecast gets worse. “We went back to review our fourth quarter forecasts and we shaved off about 30 percent [of our] revenue compared to where we were sitting.” 

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Kenneth Fearn, managing partner of Integrated Capital, worries that his company won’t see a pickup in demand. “Our hotels are city center, so we rely heavily on group business and heavily on corporate travel, and we have not seen much in those markets to see signs of hope.” But if urban hotels are struggling, he said, the company’s drive-to properties are faring better. “We have a resort that’s in Myrtle Beach, [S.C.], a drive-to market, and that has given us great hope for that market.” That property was completely closed through the end of May for six weeks, he added, and when it reopened in June, the weekend occupancy was as high as 95 percent. 

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Ridgemont Hospitality had to shut down a hotel in March, given that 65 percent of its businesses came from the surrounding San Francisco tech companies—many of whom are rarely traveling, if at all. “Not bringing back people till next year hit the industry very hard in Silicon Valley,” CEO Sima Patel said. But as leisure travel in drive-to markets increased, the team saw a way to attract a new demographic. “We pivoted our marketing strategy to go local,” she said, following the plans of destination marketing organizations like Visit Florida and Visit California, which are now marketing to their own residents rather than seeking inbound travel. “We’re seeing some good results out of that.”

Development Strategies

In March, Apple REIT had six hotels under contract, said CEO Justin Knight. Since the company develops through third parties, the properties were not on Apple’s balance sheet, but there was a “firm commitment” to purchase the hotels upon completion, he said. “We closed on two hotels in April and we have two that will close here shortly and another that will close next year.” Due to the pandemic, he said, the company did have to cancel one project—but that one had not yet started construction.  

Knight has not needed to approach Apple’s lender specifically about projects that they were lending against, he added. “We have had incredibly valuable conversations with the brands who have provided guidance around how we should staff and bring people on in order to ensure that we have a smooth transition, while preserving capital through the opening, recognizing that there’ll be slower ramp for some of these hotels.”  

Auro, meanwhile, has a hotel under construction that was slated to open in October. When Rama went to his bank with his forecast and his burn rate, the bank advised delaying the opening. “It’s worth paying the interest, as opposed to opening and having a burn rate,” he said. “So I advise anybody that’s got a project on ground, talk to your bank. Be transparent of what the burn rate is and how you can open something in the first quarter, second quarter of next year, where there’ll be more tailwind behind us with virus suppression.” 

Next Steps

As brands issue mask mandates and adjust layouts to encourage social distancing, the issue of how to make guests feel comfortable while insisting they participate in protecting everyone’s safety can become thorny. “We’ve had very direct and open dialogue [with our brand partners] about the need for it, and so far it’s been well received,” Fearn said, noting that most of Integrated Capital’s hotels are within the Marriott and Hilton families, both of which insist on guest masks in public spaces. “The guests have been comforted by what they’re seeing,” Fearn said. “So, to date, it’s all working beautifully. We feel comfortable, our guests feel comfortable, our colleagues feel comfortable.” Still, he acknowledged, those feelings may shift as occupancies rise, since more guests will make social distancing and deep cleaning initiatives more challenging. “That’s where I think the interesting discussions will start to really develop.”

“We’re in the business of providing [an] experience through our people, and that’s what hotels are all about,” Rama said. “We are all sitting across the aisle with our brands and saying, ‘What are the pieces that are critical and where the pieces not critical?’” In a time of massive disruption, hoteliers will need to challenge one another as well as their brands to determine what is effective for the future. “We will have to make some seismic changes,” he said, noting that the cost of acquisition may also need to change. “That’s not impacting the customer, but at least the retailer, the merchant—how do we renegotiate with them? And this is the best time that we have to do [that], so I urge all the owners to push our brands to make some hard decisions now.” 

For Knight, the crisis has given him a greater appreciation of his site teams and management companies. “They have proven that they are exceptional,” he said. “Their ability to adapt, and to find ways to service guests, and to run more efficiently and do things better in this incredibly challenging environment gives me a tremendous amount of hope that as we find ourselves in better times in the future, we’ll be doing things better than we were before, and that this business will be even more profitable and beneficial for all of us.”