Thursday, June 18, 2020
Will Florida’s hotel industry, which powers so much of its economy, face the same devastation its real estate industry suffered during the Great Recession?
At the moment, hundreds of regional hotels are facing a dead stop in revenues because of the coronavirus pandemic. According to STR, a hospitality data tracking company, the COVID-19 crisis has shuttered more than 236 of the 473 properties the firm tracks in Miami-Dade and 24 of 284 in Broward.
But experts say there is still too much uncertainty to make any predictions.
“You can’t come up with a number on the damage to [the hotel] business, or truly assess the financial picture, until you figure out when and how you’re going to open for business again,” said Suzanne Amaducci-Adams, Miami-based real estate attorney at Bilzin Sumberg.
While the Greater Miami Convention and Visitors Bureau hopes local hotels may be able to open in late June, how quickly travelers will be ready to return is unclear.
Industry watchers began sounding the alarm last week, when Jeffrey Soffer’s 1,600-room Miami Beach Fontainebleau Resort — known for glitzy events including concerts by Lady Gaga and Maroon 5 — said it was working to renegotiate a nearly billion-dollar loan through a process called “special servicing.”
It isn’t alone. At least 10 other Florida hotels financed through commercial mortgage-backed securities — publicly traded pools of loans known as CMBS — also entered special servicing in April, according to Trepp, a data tracking group. The other South Florida hotel on the list is the DoubleTree (formerly Crowne Plaza) Resort in Hollywood.
“[That many special servicings] is definitely unusual,” said Kevin Fagan, director of CMBS/CRE Research in the Commercial Real Estate Finance Group at Moody’s. “That only happens during a crisis. It’s indicative of what’s going on right now.”
According to Trepp, the Fontainebleau was current on its payments as of April 6.
“As any prudent owner, we have reached out to our lenders, bondholders, and servicers to engage in discussion surrounding modifications to our loan documents during these unprecedented times,” said Brett Mufson, president of Fontainebleau Development in an undated note accompanying Trepp’s report on the property’s special servicing. “This by no means should be interpreted as our loan being in default or that we are behind on any payment.”
As of April 6, the DoubleTree’s payment was fewer than 30 days late. Its sponsor, Virginia-based Sotherly Hotels, a real estate investment trust, has seen its share price plummet since the onset of the pandemic from about $6.70 to $2.08. A representative for Sotherly did not respond to a request for comment.
The CMBS negotiations may be an advance ripple of a rising wave. Shares in publicly traded hotel companies have plummeted by more than 35% since the beginning of 2020, according to the Baird/STR hotel stock index, and profits of U.S. hotels dropped by more than 100% in March. In Miami-Dade, total revenue per available room dropped by 54% during the month, while gross operating profit per available room dropped by 81.5%.
Rich Lillis, head of brokerage Colliers’ hotel service and an analyst based in South Florida, said many lenders are granting as much as 90 days of forbearance to borrowers. Until that period ends, he said, the landscape will not be fully understood.
Hotel values were at all-time highs prior to the COVID-19 disruption — a different era.
“We expect relative hotel values will decline somewhat as a result of the unprecedented COVID-19 disruption — both from an interruption of income standpoint, and a change in risk factor in the short term in form of rising capitalization rates,” Lillis said in an email.
“Clearly as hotel owners seek to negotiate with their lenders — in many cases lenders will require new capital be invested into the asset capital structure to reduce the amount of leverage in the face of somewhat lower asset values,” he said.
Moody’s Fagan says many hotels — especially those in the middle market — may struggle to survive the current crisis. “There’s a very large percentage of hotel loans out there that don’t have the wherewithal to survive for more than (four) months,” he said.
Amaducci-Adams declined to speculate on which South Florida hotels