Too Much Room at the Inn: As Hotels Struggle with COVID, Some May Transform Completely

Business may not return to pre-pandemic levels until 2023 or 2024. So some hotels may pivot to senior living, multi-family, and reverse office conversions, says Jeffrey Binford, managing director of CBRE's Hotel Advisory.

In early 2020, COVID hit hotels in a flash: Empty rooms. Canceled conventions. Idle bars, shops, and restaurants. With a full recovery likely years away, what are owners and investors to do?

While Dallas hotel business fell harder than the national average, it had higher occupancy to begin with. The relative bright spots? Smaller, select-service hotels and extended-stays on highways and in the suburbs. But some larger hotels may never recover—and are looking for a new business to be in. Business may not return to pre-pandemic levels until 2023 or 2024, Jeffrey Binford says. So some hotels may pivot to senior living, multi-family, and reverse office conversions.

Speaking from a Hotels Advisory perspective, he says CBRE’s advisory and appraisal specialists are helping owners and lenders determine the impact of the pandemic. “We’re busy measuring business losses for insurance claims and creating new projections for both forbearance agreements and restructured loans,” Binford said. “We’re analyzing how the downturn is affecting both revenue streams and individual line item expenses.”

Downturns require both top-line revenue enhancements and smart cost containments to navigate through troubled times, and CBRE’s asset management team is “very active as many owners and lenders need hospitality expertise to analyze the overall performance of their assets,” Binford said.

The managing director of CBRE’s Hotel Advisory, among the experts in our commercial real estate feature “21 on 2021,” shares his outlook on what’s next in a Q&A.

Dallas Innovates Q+A (Images: Istockphoto)What’s the outlook for the DFW hospitality sector into 2021? How does it compare nationally?

Since 2020 has been one of the worst years ever in the hospitality sector, 2021 performance can only go up. The best measure of impact is revenue per available room, or RevPAR, which incorporates both occupancy and rate. In Dallas, RevPAR is forecasted to drop a total of 54.7 percent in 2020 from the previous year, and bounce back 35.4 percent in 2021. In any other year, such an increase would be phenomenal. By comparison, RevPAR is projected to decline 52.5 percent nationally in 2020, rebounding 41.1 percent in 2021. To that extent, one could say Dallas was impacted worse and may take a longer time to fully recover. But the fact is, Dallas achieved a higher occupancy in 2019 than the rest of the nation, so it had a bit further to fall.

What long-term changes do you anticipate?

The industry has been changed forever by the pandemic. Expect to see some slowing of new hotel openings and some hotels closing, both on a temporary and permanent basis. Operationally, most hotels have much stricter procedures throughout the hotel, from checking in with kiosks and front desks behind plexiglass, to cleaning and sanitizing guest rooms, meeting rooms, and food and beverage outlets. From a design standard perspective, expect spaces to be changed to allow social distancing. From a technological perspective, we’ll likely see more touchless features and more voice-activated features from unlocking doors and changing TV channels to controlling air temperature and window coverings. New hotel developments will be able to incorporate all of these changes into their developments.

What important trends do you see rising?

With some hotels closing, we’re seeing repurposing of the buildings. Hotels which may have been office conversions are being considered for a return to their original use. Other hotels are evaluating multi-family uses, senior living, and other residential conversions. In most cases, this should help other hotels by removing some inventory and allowing market occupancies to rise more quickly.

What’s the biggest challenge you see ahead for hospitality and hotels in 2021?

The single largest challenge is trying to determine when group travel will return. Leisure travelers were the first to travel due to the “cabin fever” of working from home. Traveling together, primarily by car, many leisure travelers have been active since late May. As expected, individual business travelers will be the next to return. Groups are much more difficult because travel decisions are made by the individuals within the groups, not meeting planners.

What else should the real estate community know about the hospitality sector in Dallas-Fort Worth?

Depending on what’s being measured, we project business should recover to pre-COVID-19 levels between 2023 and 2024. Resorts and large, full-service hotels with expansive meeting spaces—typically located in urban areas—have been hurt the most, primarily due to the lack of group and business travel. Smaller select-service hotels and extended-stay hotels in highway and suburban locations have had the least impact.

Much like before the pandemic, hotel room rates will continue to be pressured, due primarily to short-term rentals. I’m still bullish for North Texas. The economy was strong and performing well before the pandemic and should have all the pieces in place for a solid recovery.

The interview has been edited for brevity and clarity. A version of this story first published in the Fall 2020 edition of the Dallas-Fort Worth Real Estate Review.

Sandra Engelland contributed to this report.

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