It's hardly a secret the hotel industry has been sluggish during the COVID-19 pandemic. For one thing, many states have had, or continue to have, travel restrictions that make it difficult to book a hotel stay. And many households are halting or changing their plans for leisure travel this year, whether due to safety concerns or financial constraints.
At the same time, a lot of companies are cutting back substantially on business travel for employees -- nobody wants the added liability right now. And of course, business conferences are largely cancelled, a trend likely to continue.
All of this means hotels have seen a drastic reduction in revenue since the COVID-19 crisis first erupted. The damage is now becoming clear -- so much so that the hotel industry is pleading with lawmakers to jump in and help.
Hotels risk foreclosure left and right
It's estimated roughly one out of every four U.S. hotels cannot keep up with its mortgage payments, and delinquent mortgage accounts can easily pave the way to foreclosure. All of this was outlined in a report sent to Congress in August, which showed that 23.4% of hotel properties were 30 days or more delinquent on their outstanding mortgages. That's the highest percentage on record. In 2019? The percentage of hotel loans that were 30 days delinquent or more at the end of the year was 1.3%.
For this reason, hotels are begging for help. In a letter signed by over 4,000 hotel owners and multiple trade groups, the industry is asking for financial assistance for businesses that operate within the commercial real estate market. The measure they're trying to push is the Helping Open Properties Endeavor Act (HOPE Act). The HOPE Act would provide hotels and other affected businesses access to capital so they can continue to keep up with their operating expenses.
Let's not forget hotels don't have the same relief options as homeowners during the pandemic. Whereas homeowners can request forbearance on their mortgages, for hotels, it's not that simple.
How badly will real estate investors get hurt?
Though unemployment has been rampant in the hospitality industry, it's not just hotel workers who stand to get hurt this year. Real estate investors with money tied up in physical properties or hotel real estate investment trusts (REITs) are also in a very precarious position. Given that travel isn't likely to pick up anytime soon, they may need to brace for serious losses. But if hotels are able to get relief, numerous properties could be saved from going under.
The bottom line
While tourism may be sluggish as long as the COVID-19 pandemic rages on, once it's over, the public will be itching to travel. At that point, hotels might enjoy a revenue surge like never before. If they can get the relief they need to stay afloat in the interim, real estate investors might actually fare quite well.