How COVID Changed the Nature of Hotel Management Agreements
The onset of COVID left the hotel industry in disarray, as travel basically shut down nationwide overnight. But looking at the sector now, occupancy numbers have been rising rapidly, with expectations setting in that the sector could return to pre-pandemic numbers by 2024, according to CBRE. Partner Insights spoke with Michael Kosmas, a partner at Stroock & Stroock & Lavan LLP and head of its global hospitality and leisure practice, for insight on where the sector stands today, and how the pandemic has affected hotel management agreements.
Commercial Observer: What is the status of the hotel industry today, and where does it stand compared to 2019 levels?
Michael Kosmas:
There is a small subset of hotels that did better than ever during the pandemic in places like Miami and Scottsdale, where they didn’t go into full lockdown. New York is recovering — New York will always be New York — but most other big cities are seeing a much slower recovery. Business travel has not returned to what it was, and group business is recovering slowly. In a lot of core cities — Detroit, Baltimore, to some extent Washington, D.C. — business is climbing back, but it’ll be a few years before they get back to where they were.
Does Stroock represent owners, operators , or both?
We are an owner-side shop, and we primarily represent institutional and high-net-worth owners, investors and developers. It’s kind of like union law in that you typically don’t represent both. There are just too many issues that you don’t want to be on different sides of on a daily basis.
What were some of the more common situations owners and operators found themselves dealing with under hotel management agreements during COVID?
One huge issue was, who has the right to make the decision to shut down the hotel, whether partially or fully, and what does that decision-making look like? Operators wanted to protect the hotel, but they also wanted to protect the brand. Owners tended to be more focused on the bottom line. They may have wanted to shut down immediately to stop the hemorrhaging, where brands might say, look, we need to keep the hotel open to the greatest extent we can because if we shut down fully, and the hotel two blocks down keeps 20 percent of their rooms open, our customer base will shift to that brand. So there were points where the owners’ interest and the managers’ interest diverged. There was also the issue of the types of benefits to offer hotel employees. You have great employees who have been there for decades. Do you tell them to go get unemployment, or does the hotel do something in that area? No one was contemplating this in advance.
