Hotel Lawyer: PACE Financing – Now an accepted tool for hotel lenders and borrowers
Hotel finance lawyer: PACE Financing is now mainstream
By David Sudeck and Jim Butler
Opinion Articles
Impact of Recent Federal Stimulus on the Travel Industry
The COVID-19 crisis consumed the United States for approximately three-quarters of the past year. In December 2020, the U.S. Food and Drug Administration issued emergency use authorization for the Pfizer-BioNTech COVID-19 vaccine.[1] The development and distribution of an effective COVID-19 vaccine, alongside other public health measures, should allow us to combat the health effects of the global pandemic. With certainty coalescing around the health solutions to the pandemic, attention must turn to economic solutions.
By Thomas Hazinski and Joseph Hansel
Hotel Lawyer on PPP2 and the COVID Relief Bill’s changes to Paycheck Protection Program
We have a new PPP Loan authorization bill out of Washington, after months of political wrangling. Congress could have done more, but they did provide for up to $2,000,000 in additional forgivable loans per borrower, along with provisions which specifically cater to the hospitality industry.
By Jim Butler, Partner & Co-Chair Hospitality Practice, Blank Rome LLP, Blank Rome
2021 Hotel Financing Predictions
It is obvious that hotel operating performance will be much better in 2021 than 2020. It is, perhaps, less obvious that hotel lending has already begun staging a comeback that will accelerate throughout the year while continuing to stay ahead of actual hotel performance.
By Brian Holstein, Principal, US Hotel Advisors
2020 HVS Lodging Tax Report - USA
While prior HVS annual lodging tax studies have looked back on tax rates and revenues across the United States, this ninth annual Lodging Tax Study also looks forward and assesses the impact of the COVID-19 pandemic. This analysis of 25 major US markets illustrates the depth of the impact on the hospitality industry and projects a pattern of recovery over the next few years. HVS also provides historical data on tax rates and the collection and distribution of revenue from lodging taxes levied in all 50 States and the 150 largest US cities.
By Thomas Hazinski and Joseph Hansel
U.S. Hotel Development Cost Survey 2020
In 2019, the national lodging market reached new heights, with hotels reporting the highest occupancy and ADR levels ever recorded. Similarly, hotel development continued at a steady pace, with new hotels opening to a burgeoning market and new and exciting projects continuously being moved through the development pipeline. Since the start of the COVID-19 pandemic, government restrictions, travel and group cancellations, and an overall fear of traveling have caused an unprecedented drop in travel and tourism demand in the country and around the world, which has resulted in substantially lower occupancies and average rates.
By Luigi Major, Managing Director, Advisory of HVS Americas, HVS
Benchmarking 101: The Bottom Line on Utility Costs
In the age of COVID, numerous operating costs have decreased, as hoteliers have done all they can to reduce expenses to help offset the extreme reduction in revenue.
By David Eisen, Content Director, Media, Questex
COVID-19’s Potential Lasting Impact on Fixed vs Variable Hotel Expense Ratios
As a result of COVID-19, hotel operators have been forced to make tough decisions, including the most basic one on whether to keep the lights on. Many were required to close their doors after municipal mandates were put in place and some decided to remain open, despite record-low occupancy levels, to house pandemic-related first responders and other essential personnel related to the fallout from the spread of coronavirus, largely in place of more traditional sources of demand during "normal times".
The Case for Targeted Federal Aid to DMOs and Tourism Agencies
The COVID-19 pandemic has placed at risk the substantial investment of state and local governments in the tourism and hospitality industries. Publicly funded destination marketing organizations ("DMOs"), tourism agencies, and convention centers face budget shortfalls, staffing reductions, and growing financial uncertainty. Targeted federal aid is urgently needed to support DMOs, tourism agencies, and convention centers whose work is critical to the recovery of vital sectors of the US economy.
By Thomas Hazinski and Joseph Hansel
HVS: Temporarily Closed Hotels Due to COVID-19: When to Reopen?
With the advent of the COVID-19 pandemic in the U.S. in early to mid-March 2020, hotel owners and managers watched demand for their rooms suddenly evaporate. Since then, tough decisions have been made regarding whether to remain open or temporarily suspend operations. Hotels that have temporarily suspended operations now need to decide when to reopen. This article addresses the considerations to be weighed in this process and provides one example of the calculus for a hypothetical hotel.
By Suzanne Mellen and Neil J. Flavin
HVS CPACE Strategy for Avoiding Loan Loss Reserves and Preserving Equity Capital
A recently published article by several of my colleagues at HVS forecasts the expected pattern of decline, and the subsequent recovery, in the market value of hotels in the United States under "best case," "most likely case," and "worst case" scenarios. And while they further acknowledge a variety of factors that will also influence the ultimate value impact realized by a hotel under each of these scenarios, the decline in asset value under the "most likely" scenario is expected to average 26% in 2020, with 2019 market values not being fully recovered until 2023, at which time they are anticipated to surpass 100% of the 2019 market value.
By Kathy Conroy, MAI, Senior Managing Director of HVS Miami and Practice Leader of Shared Ownership Consulting, HVS
HVS Hotel Transaction Activity: The Factors Influencing a Return to Normalcy in a Post-COVID-19 Time
As a result of the current COVID-19 pandemic, the HVS Team has received many questions about when U.S. hotel transaction volume will return to reasonable, pre-pandemic levels. While we do not have a definite answer, as these circumstances are evolving daily, we have tried to use past events to provide some insight on the factors that would affect a possible rebound. We see the anticipated volume declining because of COVID-19.
By Drew Noecker, Managing Director and Co-Head of the HVS Brokerage & Advisory Divsion, HVS
Compensation Impact on Taking Money from the Government (CARES Act HEC)
To receive financial assistance (in the case of air carriers and contractors), or loans and loan guarantees (in the case of other eligible businesses), a company must agree to the following limits (which generally apply during the period of assistance and for one year thereafter) on annual compensation and severance payments for each officer and other employee (other than a unionized employee) whose "total compensation" exceeded $425,000 in 2019 ("CARES Act HCEs"):
By Keith Kefgen, Managing Director & CEO, AETHOS Consulting Group
Hotel Investing in the Uncertain Pandemic Climate
As we commence a new quarter in 2020, facing heavy headwinds in the face of the new decade, it is more important than ever to develop a plan to work through this pandemic. There is still so much uncertainty, yet it is our responsibility as business professionals to develop a plan to prepare ourselves for the worst-case scenario.
By Ahmed Kabani, Vice President Investments - Senior Director, Marcus & Millichap
HVS Brokerage Insight: Outlook for Transactions in the Wake of COVID-19
As of February 2020, the market remained strong, with low-interest rates continuing to attract investors despite some softening in the outlook for the industry. It's a whole different world just a few weeks later. The coronavirus (COVID-19) has directly impacted the hotel industry through the expeditious cancellations or postponements of large events and business travel across the country.
By Dustin Robinett and Kelson Reimer
The Importance of Financial Relief for the Hotel Industry
The coronavirus (COVID-19) pandemic is having a profound impact on the hospitality industry, as travel restrictions, limits on large gatherings, the closure of restaurants and bars and, perhaps most influential, fear of the virus, have brought travel—and most other aspects of hospitality—to a virtual halt. According to Chip Rogers, president and CEO of the American Hotel and Lodging Association (AHLA), "The impact to our industry is already more severe than anything we've seen before, including September 11th and the Great Recession of 2008 combined."
By Anne Lloyd-Jones, MAI, CRE, Director of Consulting & Valuation Services, National Practice Leader, at HVS New York, HVS
U.S. Hotel Development Cost Survey 2018/19
In 2018/19, the national lodging market continued to climb to new heights, albeit at a more moderate pace than in previous years. In 2018, hotels in the United States operated at the highest occupancy and average rates ever recorded, with both metrics registering additional growth during the year-to-date July 2019 period. While the pace of new hotel development and the entrance of new supply has remained tamed when compared with the previous cycle, this pace has been accelerating, as evidence by increases in supply in 2018 and 2019, as well as the number of hotel rooms under construction as of mid-year 2019.
By Luigi Major, Managing Director, Advisory of HVS Americas, HVS
Employee Benefits Reporting on Your P&L
When it comes to payroll we are not just paying the cash wages. We have additional dollars that are substantial in the form of supplemental costs and employee benefits.So, what we want to have are three areas we can see and analyze in our financial statements:
By David Lund, The Hotel Financial Coach, David Lund
CFO Compensation in the Gaming Industry
The CFO is typically the second most important role in a public company behind the CEO. That is clearly the case in the gaming industry. As most industry leaders know, AETHOS conducts a study of gaming CEO pay each year, so we decided to look at the state of CFO pay as well. Our analysis included 33 public gaming companies, that includes operators and manufacturers. The data represents CFO total direct compensation, including base salary, short and long-term incentives and other pay, reported in percentile format and includes cuts at the 25th, 50th and 75th percentiles for each component of compensation. The raw data is provided here.
By Keith Kefgen, Managing Director & CEO, AETHOS Consulting Group
Zero Based Expenses – How to Plan and Manage
I help hotels manage their profits more efficiently and in the hospitality world, there are only two main cost types that need a system and a strategy to properly control them. The two culprits are payroll and expenses. In this piece, I am going to talk about expenses, namely a process for establishing and managing your expenses on an ongoing basis in real time using a zero base.Zero based expenses are nothing new. Here is the definition from Wikipedia. Zero-based budgeting originated in the 1970s. Many businesses will budget and plan out things to maintain financials. In the past, businesses would only look at specific things and would assume that everything is already in place and does not need to be double-checked. However, in zero-based budgeting, everything that is to be budgeted needs to be approved. Since zero-based budgeting requires approval for budgeting, this means that budgets are started from a zero-base, with a fresh decision on everything being made every year. In hotels, we find the zero base very hard to establish but, in my experience, it's just the opposite. It's actually easy to find and define the detail but it competes with the other business constituents, the guests and the colleagues. Both of its competitors have voices and they can speak, so unfortunately the expenses in many instances take a perpetual back seat. What this means is hotels operate without a concrete plan when it comes to managing their expenses.Oddly enough this is OK for most hotel managers, but owners have a very different view. Managers are interested in keeping things fluid and smooth. This means department managers can operate with a certain amount of flexibility and their spending reflects this. After all, the top line is coming in and we all know a certain amount of volume hides a multitude of sins. At least that's the case until the customers slow down or, heaven forbid, the phone stops ringing. When it does or when the hotel chooses to make the effort to control their expenses the system they need to use is the tried and true Zero Base.In order to establish a zero base, we need to do some homework - nothing too complicated but it requires a focus and some discipline. When this is required all too often the task of getting the detail is left to a Jr. somebody. This is a mistake. Teaching them the system once established is a good idea, but getting this process working and right requires the individual who can organize and allocate resources within their department and that means they need to be seasoned.To establish the zero base, we need to create our list for each General Ledger account in complete detail. The best way to do this is to run the line by line from each account for the prior 12 months. Once we know the vendors we then pull the corresponding invoices and record the items purchased, the quantities and the unit price. This is not rocket science, but there is no other way. Once this is done you have your detail and now it's time to plan. What are the parameters of your expense budget or historical cost for this expense line? From your research and your knowledge of how your department operates what do you need to include in your forecast? Make your plan and include all the items, the price and the quantity. Taking into account the forecasted occupancy or cover counts for rooms or F&B, and for non-operating departments, it's total revenue you want to measure your expenses against. From the forecast of each line, we now have the departmental total expense forecast for the month in front of us. We submit the totals for each line to the finance leaders and they consolidate our data with all the other departments. When this is done it's inevitably too many dollars of expense and this is the pivot point and the most important part of the exercise so far. You may be asked to reduce your department's expenses by a dollar value - say a $5,000 reduction is requested. Now you have a list to look at and you get to decide what you can live without next month. Remove these items from your forecast detail and retain a copy of what was axed. Now you have the detail to support the forecasted dollars of expenses and it's time to start ordering your supplies. This is another critical junction because we want to ensure our spending is in keeping with the revenue projections. In most hotels, we book a significant portion of our revenues in the rooms area "in the month - for the month." We need to order in 1 or 2 week installments allowing the ability to reduce or even increase quantities needed based on the pickup. This is what we do the zero-based work for, the ability to flex our spending based on revenues, allowing our department to manage its flow thru. If the forecast was for 75% occupancy and a rate of $150 and the projection on the 15th of the month is 70% and $145, I need to adjust my ordering and expenses to compensate for the drop in revenues. If I don't have my detailed list, I'm sunk and I have no way of knowing what to trim.I have a section in my workshops where we discuss zero-based expense planning and I explain it like a household grocery shopping experiment. It goes like this. If I send you to the store with $200 and ask you to buy some groceries, you will spend the $200 and come home with lots of interesting things. On the other hand, if I send you to the store with the same cash and a shopping list you will come home with what's on the list. Now the pivot. I only have $180 this week, so I send you to the store with the same list and I ask you to decide what we can live without this week. Now we have a chance to get what we really need for groceries given our revised forecast. Your hotel departmental expenses control and your zero-based system are the same.It's not rocket science it's just being organized and having a list. With that list you're going to know what you need, what to order and if need be, what to trim. Without it you're sunk.
By David Lund, The Hotel Financial Coach, David Lund