Renting out hotel rooms by the hour can have a, shall we say, unsavory ring to it. But how about by the workday and for perfectly legitimate uses, like a very temporary office?
That's the thrust of a recent article in the very respectable Wall Street Journal [subscription required] that delved into how major operators such as Marriott International (NASDAQ: MAR), Hilton Worldwide Holdings (NYSE: HLT), and Hyatt Hotels (NYSE: H) are experimenting with offering day use to office workers bored with working from home and willing to pay for the privilege of working in a nice room while the kids use the pool or beach.
The WSJ said some hotels are promoting day rates, while others are offering longer-term stays and package deals from families. Marriott is offering the stay-for-the-day option through its loyalty program and to corporate partners interested in offering it to their own employees as a perk.
It's a way to fill empty hotel rooms, for sure, and the hospitality industry needs the bump as much as any segment in this pandemic-plagued economy.
An industry on the brink as vaccination season approaches
The numbers are bleak. For instance, the 17 real estate investment trusts (REITs) in the lodging segment tracked by Nareit posted a year-to-date total return of -50.33% as of Nov. 23.
And from the lender perspective, Trepp just reported nearly 20% of the more than 3,100 commercial mortgage-backed securities (CMBS) loans backed by hotel properties across the country are delinquent.
Perhaps even more stark: The American Hotel & Lodging Association said a survey of more than 1,200 members conducted in mid-November found that 71% won't make it another six months without further federal assistance, and more than a third will be facing bankruptcy or forced to sell by the end of 2020. As of this writing, that's in less than six weeks.
The coming vaccinations should help this industry -- and every other business -- a lot, but the creative ideas property managers and owners come up with now can provide temporary relief -- and maybe a long-term revenue stream to keep things buoyant even after COVID-19 is a bitter memory.
Start the thinking with office space by the day
The office space idea, for instance, does seem like a good one, since a hotel can offer novelty and amenities a regular shared-office space business probably can't.
There are other things to try. For starters, that pool: Use it for swim lessons. That was done by a few hotels here in Columbia, South Carolina, for a while, renting them to swim lesson providers. You don't need all that big a pool, especially if it's for giving wee ones their first dips.
But if the business really just can't make it as a hotel, consider making it something else; for instance, apartments. I've seen that conversion happen at least three times here in our own market, and it has no doubt worked well in multiple other cities as well. Choose the location carefully, and you could find a good buy to do it yourself if you're not the property owner already stuck with that moribund motel.
The three hotels here were in popular university and downtown neighborhoods that lent themselves to being converted to apartments for rent to students and young professionals. It depends on the neighborhood and market, of course, but hotel conversions can range from upscale to transitional housing to a place for the homeless to stay.
The Millionacres bottom line: Find the opportunity in your zone
Also, find out if your property or one you're considering is in an opportunity zone. Those carry particularly attractive tax breaks. There also are multiple other federal subsidy programs and tax benefits you can explore, and with the affordability crisis not appearing to be going anywhere soon, these could be bolstered.
Finally, consider other industry segments that seem to have better long-term prospects, at least for now, such as storage or industrial space. Sounds drastic, but maybe the best thing to do is level the place, sell the land, or develop something yourself on spec. Given the trend toward last-mile distribution in retail, it may not have to be a monolith, after all, just functional and available.
All those ideas are just for starters. Challenging times call for creative thinking, and the solution might just be an opportunity to make more out of that property than it ever was as a hotel, or at least a suitable replacement.