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COVID-19 continues to leave the hospitality industry stranded; and hotels, in particular, have felt the impact dramatically. In fact, many hotels in New York City are closing down permanently.
However, those that did survive the months-long lockdown began opening their doors again in early June. But now, hotel owners face even more obstacles, including little to no tourism and a lack of business travelers. Together, these circumstances have caused occupancy and rates to hit an all-time low. As an example, Hilton Worldwide Holdings Inc. expects it to take at least two years for the chain to bounce back after the pandemic.
What’s happening to hotels in the meantime?
Meanwhile, in an effort to prevent the spread of COVID-19 in tightly packed shelters across the city, many New York City hotels have been temporarily converted into homeless shelters. In turn, this initiative is driving money back into selected city hotels.
To finance the cost of hotel stays for those experiencing homelessness, the city is using a large portion of the funds it has received from the Federal Emergency Management Agency (FEMA), as well as taxpayer funds. Notably, according to the Department of Social Services and the Department of Homeless Services (DHS), using commercial hotels as shelters is a temporary bridge for housing until at least October.
How does this affect commercial leasing for hotels moving forward?
While public opinion on this housing initiative varies from an outpouring of support to avid resistance, hotel owners are certainly benefitting from the revenue. What’s more, landlords of commercial spaces — such as hotels and offices — have been struggling to keep up with their costs as traffic to their businesses has dropped due to the pandemic. As a result, this could also cause issues with the willingness of lenders to back these properties.
But, for the time being, temporary conversions like this may help some hospitality businesses stay afloat — enabling them to maintain their leases and continue to be able to pay for essential costs.
However, it is important to remember that these situations are only temporary solutions with limited revenue. Typically, hotels thrive on tourism and the ability to shift their nightly rate based upon the season. So, even though their doors may be open now, they still may not be making enough of a profit to sustain themselves in the aftermath.
In the end, only time will tell what the outcome of the commercial real estate industry will be.
Real Estate and Corporate Transactions Attorney Nataly Goldstein is a graduate of Cardozo School of Law, where she served as President of the Real Estate Law Association. She is experienced in both residential and commercial real estate transactions, as well as representing large banks, such as Wells Fargo and Citibank.