From Bedsheets to Balance Sheets, Hospitality Poised for a Slow Comeback

When travel shut down and consumers were forced to shelter in place at the outset of the global pandemic, hospitality took a major hit.

Through takeout service and limiting guests and events at hotels, some businesses were able to survive the last year. However, a startling number of hotels and restaurants were forced to shut their doors for good. As of September 2020, nearly 100,000 restaurants closed permanently in the United States, according to a report published by the National Restaurant Association. Hotels have not fared much better. According to a report published by the American Hotel & Lodging Association, 57,180 U.S. hotels have closed since the beginning of the pandemic.

There now appears to be a surge of travelers and diners using hotels and restaurants, as more people become vaccinated. There is some doubt in the industry whether that will be enough to keep the lights on going forward.

“The in-house folks right now are now looking at whether this is going to be a sustained, successful environment,” said Craig Ganz, a partner at Ballard Spahr in Los Angeles who works on restructuring matters for restaurants. “They’re worried about what the future looks like, on a short-term basis.”

There will be issues of insurance and labor and employment that will emerge from the pandemic. For now, Ganz said, restaurants are working to renegotiate leases to better cover debt service. For the foreseeable future, he added, restaurants are going to try to figure out what needs to be done to survive through the uncertainty of the end of the pandemic.

Ganz noted that one national buffet chain (which he declined to name) thought it had no chance of surviving the pandemic. However, because 2019 was one of its best years to date, it could use that money to keep the lights on when everything opens back up. “They could use that money to fund a bankruptcy or actually operate a buffet,” he said.

Hotels are also looking at their debt service and restructuring their organizations to emerge, ready for business, on the other side of the pandemic. “Debt is one of the biggest expenses hotels need to manage,” said Chris Payne, a partner at Ballard Spahr in Denver who works with hotels and resorts.

Payne said hotels are likely to see positive growth in 2021 but will not make a full comeback until 2023 or 2024. The hotels that survived the pandemic managed to cut costs and operate on lean expenses through the difficult pandemic year.

However, many hotels are not operating under a lease and cannot renegotiate rental terms, Payne said. He added that there has been an increase in forbearances that allow hotels to keep operating when they cannot pay their full mortgage. “It is very clear that this is a demand-based recession, and there is far less animosity between borrowers and lenders now,” Payne said.

Vaccine Passports

Restaurants and hotels will continue to make sure that cleaning standards are up to par and take precautions to protect employees and guests from possible infection, Payne and Ganz said, but they are unlikely to enforce any kind of vaccine passport. The lack of a uniform vaccine passport will prevent restaurants and hotels from adopting the practice, they said.

“If you have 16 different companies or apps for it, where is the standardization?” Ganz questioned. “It’s also offputting to segments of the population. I don’t think it is going to be getting off of the ground at all.”

Moreover, differences among states’ Covid-19 regulations highlight the ineffectiveness of a vaccine passport, Payne said. For example, in Los Angeles, it is still difficult to get the vaccine and most places are still shut down. However, in cities in Arizona, even without mass vaccination, cities have opened up and allowed restaurants and hotels to operate at full capacity.

“It’s night and day between what regulations [there are] and what vaccine progress is,” Ganz said.

Payne said he would not be surprised to see hotels implement systems that track customers from the airport to the hotel to mitigate the risk of catching and spreading Covid-19. But he said a vaccine passport would be untenable.

It is not clear when a majority of the population will be vaccinated, let alone comfortable enough to go on vacations and eat at restaurants again. What is clear is that the hospitality industry was hit hard in the pandemic and there is still a long road to recovery ahead.

From: Corporate Counsel