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Law360 (June 8, 2021, 8:53 PM EDT) -- Top hotel CEOs report that economic conditions are now improving in the lodging industry, especially in the U.S., as it recovers from the worst of the COVID-19 pandemic, saying that hospitality businesses should start to match 2019's peak revenues by 2023.
Hotels that survive the coronavirus crisis will have to reduce their indebtedness and pay off government loans, but those that do can expect to see lodging recover as vaccinations increase and travelers feel more confident about booking both business and leisure stays, according to the chief executives of six international hotel companies, who spoke Monday at a virtual conference hosted by the Jonathan M. Tisch Center of Hospitality at New York University.
"Let's hope the rest of the world catches up with the United States on the vaccine," said Tony Capuano, CEO of Marriott International. "We're very bullish about the recovery of business travel."
Keith Barr, CEO of IHG Hotels & Resorts, also said that his optimism is tied to the vaccine, and that he's looking to 2023 for a "complete back-to-normal" recovery.
"What's going to happen to all these conferences and group travel? People are going to come back as vaccinations go up," Barr said. "I think we're in a transitional period of time, and we're very optimistic about the future."
He warned, however, that the deal pipeline on new hotel construction will be sluggish until companies have paid down debt service. There's plenty of liquidity available among interested investors — many of whom want a 50% equity stake in properties — but they're not likely to break ground on a new hotel if a company is carrying too heavy a debt load, Barr said.
While the pace of economic activity in the hospitality industry is picking up, geography is heavily influencing where travelers come and where deals get done, according to Mark Hoplamazian, president and CEO of Hyatt Hotels Corp. Owners in major gateway cities, including New York, took on a lot of debt during the pandemic and are still recovering, while popular resort destinations are faring better with vacationers, he said.
Hotels are struggling with a labor shortage as leisure recovers, especially on weekends when vacationers drive to local spots for a getaway, Hoplamazian said, adding that he hopes to see more immigrants and people from disadvantaged backgrounds enter the U.S. hospitality workforce.
Mirroring Hoplamazian's concerns about the labor shortage, Hilton President and CEO Christoper Nassetta predicted that the slope of recovery will be steeper than expected. Demand for guest rooms is rising quickly, but there aren't enough hospitality employees to meet the demand.
"We have lost one-quarter of our staff to other industries," Nassetta said. "The unemployment rate is still very high, and staff still have health concerns."
During a Tuesday panel at the NYU conference on debt and finance — moderated by Jeffrey Horwitz, a senior partner in Proskauer Rose LLP's corporate department who co-heads the private equity real estate practice — the talk turned to access to the markets, with panelists agreeing that "a wall of capital" is headed toward the hospitality industry as investors seek somewhere safe to put their cash.
"Investors are looking to put money somewhere safe, and in hospitality, we own the products," according to Michael I. Lipson, president and CEO of hospitality lender Access Point Financial, who thinks that interest rates will start to climb slowly but won't spike until at least 2023.
"This wall of capital will be here with us a long time," said R. Tyler Morse, chairman and CEO of hotel owner-operator MCR Development LLC.
But Morse added that the flood of capital won't be good for everybody in the hotel industry. Large companies that already have dozens of different banking relationships will fare better with lenders than small up-and-comers who own just a few properties, he said.
"If you haven't borrowed from them before, they won't want to lend to you," Morse said.
--Editing by Regan Estes.
For a reprint of this article, please contact reprints@law360.com.
