Vail Ross, STR
Update on the Hotel Industry
Without doubt, the hardest hit sector of the commercial real estate industry is the hotel sector, and also, without doubt, the single most influential company in that industry is STR. So my guest today, Vail Ross, Senior Vice President of Global Business Development and Marketing at STR is of particular interest as she knows exactly what's going on with hospitality as a whole during the COVID-19 crisis.
Being responsible for business development and marketing, Vail provides some fascinating insights that are supported by solid statistics. She covers the percentage of hotels under construction that have continued building, just how much revenues have dropped industry-wide, and communications and marketing for hotels during life in the day of COVID-19.
What You're Going to Learn
- More Hotels are Temporarily Shut Down in Our History
- Hotel Construction Has Not Slowed Down During COVID-19
- Hotel Occupancy Rates May Remain Low Until 2024
- Investor Interest is Increasing in Hotels
- Some Hotel Owners Are Handing Keys Back to the Bank
- Creative Ways to Support Staff and Community
- Stress Test for Hotel Financial Performance and Distressed Assets
- And much more!
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Investor Interest is Increasing in Hotels
ADAM GOWER: Let's talk about something a little bit. Let's pivot to a slightly different perspective, actually, because in amongst crisis, which obviously we're in, particularly the hotel industry, really is at the sharp edge of this problem, is opportunity. And you've already mentioned multi-family or apartment financiers or owners taking an interest in hospitality. And your implication was, that their interest was to diversify away from 30-day rentals to 1-day rentals, right? To move actually into full-on hospitality. But, are you seeing any indications of adaptive reuse of hotels. People turning them into apartments, senior housing. I've been reading about other kinds of uses. Are you seeing any kind of trends or indications of that yet?
VAIL ROSS: You know, not yet today like what we did after Katrina. That was one time where we actually saw a lot of hotels that did not reopen as hotels. They were switched into another type of an asset class. Oftentimes it was either condos or it was office space.
So, some of the things that we are seeing and that we're hearing is that, the one segment that is actually not doing as badly as everybody else right now is "extended stay".
So, that has been a sector that is actually performed a little bit better than some of the others. And the thought is, is that there are a couple of reasons for that. People are going to go where the jobs are and they may not be wanting to necessarily stay in a apartment. They may not want to have a 12-month lease or an 18-month lease or things of that nature. Right now, with short term rental, some people feel comfortable with that. Others don't. So what we're seeing is that, that extended stay hotel product is really becoming appealing. And I think investors potentially see that as well that, that is going to likely be a sector that, of our hotel classes that start to do well as people start to travel where the jobs are. As well as, in every other downturn and especially this downturn, what helped drive us out, was transient and leisure travel and that is going to come back. To your point earlier, once people do feel safe, it may not be a sharp V recovery, but it will come back and people will travel with a vengeance. They really will. Whether it will be to see people or friends or family members that they haven't seen or to really realize, to have a sense of, you know, life is too short and I've got to go and see these things that I need to see because I may not have a chance.
You know, I just, I feel like that will come back and investors know that and the data is there to prove it. I don't have an, I should, definitely I can follow up with you but we do have some great profitability data and it'll be interesting to see because, again, profits are hit so hard right now and there are hotels that are just operating on skeleton crews. But historically, this has been a segment that has been profitable and I would foresee that while right now we are not in a profitable state, we will continue to be an asset class that is profitable and that is also interesting.
ADAM GOWER: And you're making the distinction of profitability in the extended stay.
VAIL ROSS: Extended stay and as in general, this industry is incredibly profitable, historically has been.
Some Hotel Owners Are Handing Keys Back to the Bank
ADAM GOWER: Now, when you talk about some hotels not opening during, after Katrina, etc. Presumably that's happening now. And I've heard anecdotally, quote, I mean, I paraphrase a quote that I heard somebody said "some hotel owners are already handing their keys back to the bank". So tell me something about what is going on in terms of, the kind of, you know, throw your arms up and give up, kind of level, and what do you seeing in terms of transactions or transfers to other owners?
VAIL ROSS: So, I have not seen any stats on that lately. However, I was just on a panel with a woman by the name of Suzanne Mellen who is with HVS. They actually do track transactions and evaluations. And, you know, what they are saying is that they are starting to see that, but really right now, these owners are turning in the asset if they absolutely have to. What we are seeing right now is that, there is really a level of trying to get cash. And we've seen the brands be quite creative with getting some cash flow and that these hotels are operating on skeleton crews and doing what they can to remain open, knowing that when things start to open back, they can ramp up. You know, there will be hotels that don't come back out of this. Absolutely. That will happen.
ADAM GOWER: What will be, what class will that be, do you think? I mean, what type of hotel is that more likely to impact?
VAIL ROSS: That's a good question.
ADAM GOWER: Is it gonna be the small boutique hotel?
VAIL ROSS: So I would, yeah, I would think, if I had to make a guess, it's going to be, I can't imagine it being the big box, the big box convention hotels. They're such amazing assets. I do think it could likely be maybe some of the smaller hotels that maybe are not affiliated with a brand, independent, probably in nature. Maybe in some destinations that don't have strong drive to, you know, there's a lot of destinations out there around the world where you can't, the drive market doesn't exist. It's just a small little area and you're not going to drive. So we may see some hotels that permanently shut down, you know. A destination that I love dearly, that comes to mind, that I actually have been following is Bermuda, for example. 70 percent of their, I think the stat was 70 percent of their community is employed by travel and tourism. That island is 23 miles long, I think, and 5 miles wide. There's no drive market to Bermuda so airlift and cruise line is huge. So, there could be some small little properties that are going to have to, that this could wipe them out. But, I can't foresee the big ones, ones that are affiliated with brands unless it's a matter of selling the asset and it's going to make more money as a different type of a asset class.
Creative Ways to Support Staff and Community
ADAM GOWER: What are you seeing are the "best efforts"? Let's talk about something really positive. Amongst all this, you've got some creative, you've got some very creative people who are working in an industry that, during the good times and even today, brings joy to all their customers. That's what the hotel industry is about. Having a good time, away from home and enjoying life. So these are creative, happy, I imagine, happy people working in a great industry. So, what are you seeing, in the industry, have surprised you again anecdotally about some of the really cool things people are doing to, you know, kind of shine a brighter light on what's happening?
VAIL ROSS: Well, I think a couple of things and the stories that you hear and this industry. I don't necessarily know that it's a surprise around the fact of how caring and giving this industry has been during this time. That does not surprise me. Some of the creative ways in which they're doing it, I think is fascinating.
You know, close to home, I'm going to speak to a local hotel, which I can't name, although, I'm sure you can Google it, has done an amazing job here in Nashville, Tennessee, where we have songwriters and we have music, is at the core of what this community is about and they are creating. They used to have obviously, in their bar, and restaurant, singer-songwriter night, where they would have all these little local singers and songwriters come and play their shows and it was a great revenue stream for not only the hotel, but for the songwriters. Well, now that we cannot gather, what they started to do is, "drive-in". So, they are posting and hosting a stage in their parking lot with the singer and songwriter and people will drive in. They keep the car separated out. People can listen to the music. They have curb delivery, food and drinks or they can bring their own and it's a donation to the songwriter and it's a way to get people out again in a safe way, supporting singer songwriters in our community and oftentimes some of the proceeds will go to the first responders. I think, again, what the hospitality community has done, as a whole, in helping our first responders has been absolutely unbelievable. And just, getting back to a sense of community as well, whether it be with local restaurants, just very creative ways to make people feel safe, to still have an experience and to support employees and overall entrepreneurs within their communities.
Stress Test for Hotel Financial Performance and Distressed Assets
ADAM GOWER: For any hotelier listening now, suppose this should be two, I should ask you there. Any hotel owner listening now, what's the best advice you could give them, you think?
VAIL ROSS: So I would say, some of the best advice would be to really stress-test your hotel financial performance. Do several different scenarios of recovery. Best case, likely case, worst case. It's something that hotels are, smart hoteliers are already doing now. And I know this because they're utilizing the data in which STR provides and we also have a consulting side of our business that is helping hotels do this. But really stress-testing financial performance, I would say, big takeaway.
ADAM GOWER: So you have a division that supports hotels, being dead straight about it. Do you also, for somebody who is listening and wanting to buy hotels, today. Are there resources or any advice that you can give to them? Any avenues at STR that might be helpful?
VAIL ROSS: I mean, yes, we have. I mean, we track all of the commercial real estate assets and what's for sale. We also have, and that's through our parent company, the CoStar Group. STR has all the hotels that are currently open and what's under construction. We don't necessarily, in our system, have what's for sale. But we do have that through our parent company, CoStar Group. I would say, advice would be to see what distressed assets are out there but as well, when you're looking at the P&L to stress-test the financials, because it's going to look very different when we open up and it will take awhile to get back to normal times.
ADAM GOWER: Yeah. And you sell data just for anybody that doesn't know by now,
VAIL ROSS: Yeah.
ADAM GOWER: after my introduction, before we got here. You sell data about how hotels are performing and you're talking about hotels that are actively for sale but, for somebody who is not a hotelier, can they buy data from STR that might show, who might be moving towards a sale?
VAIL ROSS: Yes, absolutely. We do.
ADAM GOWER: OK.
VAIL ROSS: And I would highly recommend, and we can, to go to the website because there's also great information, just free information, if people are interested. There's webinars, recorded webinars of, all over the world, of, kind of, what has started. When COVID started and how things have started to progress. There's a lot of resources there for those listeners who may not be as familiar with the hospitality space but would like to know what has been happening.
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