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On-Demand: Hospitality Sector | Are You Ready for the Recovery?

Apr 13, 2021

Our panelists focused on the recovery of the hospitality sector as restrictions loosen and travel increases.


Deborah Friedland: Good afternoon. My name is Deborah Friedland, and I'm a Practice Leader of the Hospitality Advisory Group at EisnerAmper. I'm delighted to welcome you to today's panel for the discussion on the hospitality industry and recovery, which I'm thrilled to be talking about. This is the latest installment in our monthly real estate and a pandemic series.

Welcome to my panelists. With me today, I have Abraham Hidary, CEO of Hidrock Properties, a vertically integrated real estate company traditionally focused on New York City development. Scott Hochman, Associates Director at MetLife Investment Management. MetLife manages over 106.7 billion in commercial real estate assets globally across all properties type. Mark Owens, Executive Vice President and Co-Head of Hospitality Capital Markets at CBRE. Rachael Rothman, Head of Hotels Research & Data Analytics at CBRE, and Charlie Simon, Senior Vice President Asset Management at Lightstone group, which owns over 6.5 billion in real estate assets, including over 4,300 hotel seats. Before we dive in, I'm going to ask Rachael to provide an overview of the current state of the market and what CBRE is projecting as a forecast. Rachael.

Rachael Rothman:All right. I hope everyone can hear me. Thank you to Deborah, the wonderful panelists, and Lexi. We are all absolutely ready for a recovery. So let's just quickly set the stage for where we are today. This slide takes a look at our Quarter to Date Forecast versus the first quarter of 2021 Actuals. As you can see on the right Quarter to Date, RevPAR is coming in at about $35.19. That's about a buck or 70 cents above our projections. And if we add the last few days of March, which are coming in stronger because of the great leisure demand, we're obviously going to be below the actuals by about a percentage or two. That said, we are still down about 50% year over year. So we're just starting to climb our way out of the bottom.

If we think about how weekly occupancy has trended here on slide five, hopefully, you all can see, what you can see is that occupancy was trending down about 25% through the bulk of the quarter, towards the end of the quarter, when we came into March and began to see the uptick and strong leisure demand, the gap between 2021 and 2019 occupancy narrative, the low twenties.

If we look at the same chart based on RevPAR, again, a weekly projection of 2021 versus 2019, what you'll see is that on a RevPAR basis, things are fairing slightly better. In January and February, the gap between 2019 and 2021 was about 60%. And as we came into March, that narrowed to the mid-fifties and towards the end of March RevPAR still down about 45%.

All right. Now, to the more encouraging sides, let's take a look at GDP growth. What I want you to focus on here is the yellow bar. So GDP in the fourth quarter of 2020 was actually in line with GDP in the first quarter of 2019. But RevPAR was less than half. Historically, there's been a really strong correlation between GDP and RevPAR. And if you look at CBREs forecast, you'll see that we're calling for first-quarter GDP to end in line with pre-pandemic levels suggesting that the question is when, not if, we're going to have a recovery.

Let's take a look at the Labor Market. Another big driver of lodging demand. On the left, we have the overall U.S. labor market unemployment as a percent, and on the right, we have unemployment for college-educated individuals. It could be slightly different depending on what chain scale you're focused on, where your demand drivers come from. On the left, you'll see that pre-pandemic overall unemployment was running about 4.4. We're currently at 6%. And I'm excited to announce that last night CBRE chief economist took our forecast for 2021 to 4.6%, just 20 basis points away from the pre-pandemic level.

Yes. Let's look at some forward-looking data, which is even more encouraging. On the left, this is Google Trends search data. On the left, we have corporate demand indicators, and on the right, we have leisure demand indicators. Top left, we've got word searches for the big four brands that would be Hilton, Hyatt, Marriott, and IHG. And on the bottom left, we have word searches for the Amex Centurion Lounge at the airports.

As you can see, we are coming off the bottom fairly dramatically. I know a lot has been made about the leisure recovery, but I do want to showcase that we are seeing strengthening demand on corporate as well as you can see on the left. Again, this is not concurrent with today's metrics. This is forward-looking.

On the right. We have leisure top four big brand loyalty redemption point searches and on the bottom searches for all-inclusive resorts, which by the way, are at an all-time high exceeding pre-pandemic levels. So for those of you with leisure properties, I would suggest aggressively taking rate.

This slide takes a look at our longer-term forecast. This was put out earlier in the year. And just keep in mind that obviously, vaccinations have moved faster than expected, and GDP growth is moving faster than expected. So there could be some upside here, but currently, we are calling for RevPAR to reach 101% of 2019 levels in 2024. That's kind of in the bottom right in red. That pattern would call low the same pattern as past recoveries. So no surprises there.

Let's look at how that breaks down. This gives us the first half of the year occupancy versus the second half of the year change in occupancy. And it breaks it between all hotels, lower-priced hotels, and upper-priced hotels. And the one thing that I would just want to point out that you can see in upper-priced hotels is that you see we expect a big recovery for the full year on the right in upper-priced, mainly coming in the back half of the year when corporate demand recovers.

Let's look at that by market. And you don't have to see every market here. That's not the key takeaway. The key takeaway from this slide is just that there's going to be a tremendous amount of variability in the recovery in 2021. How fast any individual market recovers will depend on how much leisure demand, how much drive to demand, how much convention, and how much corporate business they have. And so you'll see, there are some markets that will be at 20 or 30% of 2019 levels while there are other markets that will be at 85% or more.

Let's dive into two slides on profitability. So CBRE maintains a database of 7,000 individual hotel P&L, profit and loss statements, the complete profit and loss statements that can be customized to make a comparable sets used for asset management, benchmarking, development, et cetera. I just want to look here on the left you'll see 2020 versus 2019, total operating revenue fell 58%, and gross operating profit fell 78. What I want to point out from that is the operators were able to contain flow through, negative flow-through from changing revenue to change in GOP to just 1.35 turns. That's the most efficient they've been in any recession. And unfortunately, as you can see, EBITDA was negative in aggregate.

To hand end on a slightly higher note, let's look at some charts here for profitability. This is 2021 now. You'll see the month of February alone is the green bar and then year to date through February, so January and February aggregated in gray. What you can see is total revenue declined less in February. GOP declined less in February. And EBITDA declined less in February. So we should be on the cusp of both a pivot or an inflection point in top line and in profitability. Great things ahead. I'll turn it back to you, Deb. Thanks so much.

Deborah Friedland:Right. That's excellent. That was very good news, better than I expected. And I'm thrilled. Thank you so much. Rachael. So let's dive into our panel, Ab and Charlie, you own the very different types of assets, and different markets focused on different demand segments. Where are you seeing bright spots in early recovery in your portfolio? Scott, would you like to get started on that?

Scott Hochman:Sure. Thanks, Deb. I hope everyone can hear me okay. So as far as some bright spots that we've seen in our portfolio, that would definitely be in our resort markets. Georgia and Florida, we have two large resort properties, and we're seeing great results there and happen throughout the pandemic. A few data points, which are interesting. Our Georgia resort is projecting almost a 17% ADR growth year for a year. And Orlando Resort has been able to achieve 100% occupancy on multiple weekends. And this is over 2000 key hotel, so really positive trends going on there. And more of the customer level, we're seeing some great trends to group lead volume for 2021 is 50% of 2019 year to date, which is very encouraging.

So a lot of good stuff coming out with the retorts big occupancy increases. And then, in our urban markets, we're seeing a few green shoots. I would say in our New York City, hotels are an occupancy where maybe in February it was closer to 20% or so, now we're seeing that get closer to 50% these days as the weather warms up and similar trends in D.C. and NOLA on the weekend. So, some good leisure activity on the weekends. And also, from a social aspect in Washington, D.C., we have a hotel. It does really well on the social catering side and huge pent-up wedding demand there. So that's a positive there, as restrictions ease we expect the social business to come back. So that's where we're seeing some positivity in the market today.

Deborah Friedland:Charlie, Milestone owns hotels all over America. What do you think?

Charles Simon:Yeah. So we're sharing some of the general trends that have been discussed already late January. It was sort of like a light switch went off. We had that bump like a lot of the other types last summer, but that kind of petered out into the winter. And then late January, it was like a light switch. Everybody wanted to get out. It's interesting, we have a lot of local attractions in some of our markets that are in New York or Chicago, LA that we don't historically think of as significant demand generators, such as a big Lake or for instance, hotel pool. We saw demand the being generated from these forgotten types of demand generators. So that was really interesting. And we're seeing that, and that's been picking up.

From an occupancy perspective, I think we saw it jumped back much faster than I think we were all, certainly what we were budgeting. We started the year hovering in and around 50% for my whole portfolio. We jumped into the 60s, and last week we were pushing 70, and that's across 23 select-service hotels from the Boston area, across the Seattle and Texas, and throughout. So those are some of the sort of high-level trends, I would say ADR is still a challenge, but we're seeing the ability to push a little bit, especially on weekends. I would say overall the elasticity of pricing is a lot less high than I think a lot of people in the market are giving it credit for. Frankly, I think we can push pricing a bit more and see it.

Clearly the extended stay product. I don't think that's going to be a surprise. A lot of people, what we saw success and we continue to see success and extended stay. And the airport market hotels that we have, have seen in immediate impacts from more travel. We've seen crews coming in, manifests have been more robust, and they continue to grow. And it's the manifest that we've been seeing for what we saw for April. And now we're seeing for May continue to increase. So as a leading indicator, that's some good news as well. And of course, Florida, the Southern States in general, have been very productive through in the spring break periods.

Deborah Friedland:Thanks, Charlie. Maybe before you ends, I'm actually going to now in my question to you since he brought, has so many, most of their assets in New York what trains you in New York at this point in the cycle? And how do you think some of these will play out over the long term?

Abraham Hidary:So in New York, any positivity we've seen on the revenue side is really minimal. The trend is obviously positive. March was better than February, which was better than January, which was better than December, and I'm sure we'll continue to improve, but I put most of the positivity on the expense side. First, to see the employees that work in these hotels and what they've done and accomplished during this period has really been spectacular.

Unfortunately, there's been a ton of layoffs, as we all know, but those that have stuck around are going above and beyond. Managers have taken on multiple jobs. They're working with the front desk. They're working sales. They're even cleaning rooms where necessary. So it's been really, really nice and heartwarming to see how far some people have gone and how much they value their job and their hotel and work to keep it as beautiful as it can be during the downturn. So that's been great.

We're also seeing on the real estate tech side in New York a huge reduction in taxes. It might be temporary. We're hoping that maybe it won't just shoot up to what it was. So that's something that's beneficial as well. And then on the FNB side, I think a lot of hotels, even pre-pandemic in New York we're starting to cut some of their food and beverage offerings. We've seen that obviously accelerate during the pandemic with fewer guests and difficulty with a lot of the COVID restrictions serving meals. We're seeing the brands are being super flexible, and it's our hope and expectation that coming out of this, there's going to be some modified food and beverage offerings that come out that help hotel owners minimize their expenses going forward, which will be better off for the industry as whole.

Deborah Friedland:Sounds good. I hope so. I really do. Thanks. Mark, I'm going to turn it over. According to Moody’s, many U.S. hotels remain underfunded despite additional federal relief from PPP. These hotel focus mainly on business or group travel. According to Moody’s, these hotels areapproximately 12 months out for recovery. What type of rescue capital is available to these owners?

Mark Owens: Sure. Thanks Deborah and to the panel for being here. I think what's very different about this cycle versus what we've seen previously is really we're not in a capital-constrained in like the global financial crisis or even the period shortly after 7-Eleven. And so rescue capital is abundant. There was about $76 billion raised specifically targeting distressed real estate. So, on top of that, you've got billions of additional capital that are sitting out there and relatively little transaction activity. So there's a lot of capital looking for homes, and that's a really across all types. We've got debt funds that are willing to step in from a rescue capital perspective, family offices, both domestic and overseas, opportunity funds, and even some of the life company buckets. And so, I think that bodes well for owners that may be in a period of distress or that aren't seeing the booking window pick up in some of the larger-scale assets.

What we have seen, though, that I think is interesting in particular is on multiple occasions after going out to market raising rescue capital, illustrating what the market is really the LPs and in some cases, even the GPs stepping up and is essentially writing the checks themselves. A lot of the LPs are in positions where they're having trouble deploying capital elsewhere as well. And they know the asset. They know that this is really sort of pandemic and health-driven versus market-driven and are willing to step up. So, there's a variety of places to answer your question in short depth.

Deborah Friedland:Just to follow up on that. What advice would you give to hotel owners and developers as they continue to negotiate with their current, maybe future, lender?

Mark Owens:Sure. I think what's always important, especially in a period like this, is to have a plan and discuss the situation. Make sure that the borrower and the manager have adapted to the environment, explain what is taken, what has been done to help adjust, whether it's the business, the marketing, et cetera, as Abraham mentioned. Diversification of employee roles and then have research really backing up proforma projections and the assumptions and propose what the necessary reserves are in order to weather the storm.

I'd also make sure one thing that it's incredibly helpful is benchmarking your performance against that of your comp set and some of the peers. If you can walk in and illustrate that it's really a market, it's not a market issue, and it's not an asset issue. Then I think you have additional leverage and really being prepared to infuse capital yourself or have that backup. So, whether it's having spoken to someone on the rescue capital side or PPP loans, whatever other injection may be available to bring fresh capital in that generally has been helpful in helping some of the lenders adjust their terms and always have a backup plan.

As I mentioned at the beginning, because of the liquidity environment, we have seen a number of lenders, alternatives, et cetera, come back into the space. So if you're not getting the results that you'd like, or there's just challenges from that particular lenders, balance sheet or their position, there's likely another solution. So have that conversation broadly before going in to negotiate in case you have to pivot.

Deborah Friedland:Thanks, Mark. Summed up pivoting, I'm going to pivot over to operational issues. Abraham had just commented about the changes that they had implemented in the stores to the hotels. Charlie, can you elaborate on what operational changes you implemented during the height of the pandemic that will remain in place?

Charles Simon:Sure. And I'll say this with the courage that we'll do everything we can and maintain this in place for as long as we're able. The number one thing out of the box was ensuring that we changed the standard operating procedure with regard to housekeeping. I don't think we're alone in that. Getting into a room every day is just something that I just don't see us doing going forward. Doing checkouts makes a lot of sense upon request. If there's a long length of stay getting in there once a week. We're not going to walk in there and just hand over fresh towels. We're not switching out bottles of shampoo, things that seem pretty simple and straightforward.

In the early days, nobody wanted us to go near their room, and we haven't really seen a significant change in that. The time for going back to normal may never come. I don't know that we should have been in rooms that often to begin with, if I'm being completely honest. So we'd like to see that. We revised the way we function in lobbies. We cross-trained to was still around to do many jobs. Now we're starting to play with like for example, food and beverage offerings, when we went to just simply an item that you picked up and getting rid of the buffets and getting rid of someone hanging around just to be there in case, and going to, let's say, just full grab and go concepts. We'd like to continue that as long as we can.

Then finally, in terms of using, let's say, a kiosk to help check-in too so that I don't have to bring in another body just to work somebody through, especially as digital key and mobile check-ins become more and more the thing. I think those are the top. Those are the key operational changes that we're going to probably see going forward.

Deborah Friedland:So we've all become so acclimated to technology and them and everything else just really sped up everything in terms of using robots and things like that. Charlie, I know you just touched on mobile check-in and I know Scott, Abraham, can you comment on additional uses of technology that you've either implemented or are considering?

Scott Hochman:Yeah, I can just jump in and say, supportive what Charlie's saying, Orlando Resorts, something that is new, that we implemented was mobile ordering by the pool. And it has been a huge success. It's probably something that we should have been doing well before COVID because why would you want to get up from the pool to go order the food or wait for a server when you could just do it digitally with your book, your phone. So I think that's something that we are very happy to see and will absolutely be with us moving forward on our resorts.

Abraham Hidary:We actually did the same thing with regard to breakfast. In the traditional New York City hotel, we used to just put out breakfast. There was a buffet, couldn't do that during the pandemic. So instead, we set up a relationship with some neighborhood eateries, and we have our guests download, and they could order on their phone, and it gets delivered up to their room for breakfast. So that'd be nice if potentially it stuck, and it would save us some money preparing breakfast every morning.

Deborah Friedland:Perfect. I'm going to turn to opportunities, investing, developing. Abraham given how the pandemic has affected New York City, have you broadened your investment strategy to include other markets? And if so, can you elaborate?

Abraham Hidary:Yes. Our primary was to go ahead and identify opportunities in New York City. We're big believers in New York. We think the market is going to snap back quickly. And quite frankly, it's been decimated. The problem is that there have not been opportunities that have come to market. As Mark Owens said earlier, there's rescue capital. There are owners who are standing behind their investments, LPs, GPS, and there hasn't been a lot of opportunities or properties coming to market unless they were hotels that struggled pre-pandemic. And that's something we have to be careful not to buy into it now and blame the pandemic.

So instead, we continue to look in New York, but we turn focus to Florida as many New Yorkers have. And we're actively looking for acquisition opportunities in both Miami and Orlando, unbelievable demand drivers. They were hotspots pre-pandemic, and that's only accelerated now on the business side, on the residential side, on the leisure side. There's a lot going on in those markets, and we actually just purchased retail building down in South Beach. So we're looking to get more active in Florida markets.

Deborah Friedland:I'm going to ask the same questions before it goes. Abraham, are you seeing like a ton of competition given all the capital out there, and how do you kind of set yourself apart from the other bidders?

Abraham Hidary:I'm sorry, was that question for me? I missed it.

Deborah Friedland:Yeah.

Abraham Hidary:How do we separate ourselves from the other bidders? We're actually on the ground in Florida. We have an office there. We're down all the time. And you'd be surprised a lot of the ownership groups, and the brokerage groups are very common to New York. So relationships run deep, and it's a small real estate world in New York, and that's extended out to Florida. They call it the sixth borough for a reason. And that's the reason we decided to focus on Florida, not some of these other hot markets that we've all seen in read about Austin and Denver and rally in D.C. and Boston. There's a lot of great markets. Florida is something that we naturally slipped into and have the relationships.

Deborah Friedland:But, surely we know not let you know not as fully. Scott, is MetLife looking at acquisitions, so lending opportunities. And if so, what's the target profile that you're looking at?

Scott Hochman:Yeah, so we've definitely stayed on the lending side. We have been looking at deals throughout the pandemic. We really, really never stopped on the lending side. On the acquisition side, we're definitely looking with a different lens these days. Large portion of our portfolio is already comprised of big-box convention hotels. So for new opportunities are really shifting our focus to resorts or limited select service. I would say we're really, really bullish on the limited select service. And a lot of that is due to we have a select-service hotel in Chicago, and we're astounded at how well it was able to perform mainly from the expense side during the pandemic, but we really were able to operate that hotel so lean. And we think that's a good place to be and add some more diversification to the portfolio. So shifting the focus a little bit to kind of more non-full-service types and resorts is our direction.

Deborah Friedland:Charlie, I know five minutes before this webinar started, you told me that I made an error about the number of rooms that Lightstone had under management. And you asked me to increase it by 100. So my increase that Lightstone is a buyer, or are you looking at selling as well?

Charles Simon:Well, the reason for the increase is that we opened the Moxie in South Beach back in February, and that number hadn't been updated to reflect the key count for the opening. What I would say, and probably a lot of investors would say is, we're looking for good returns. And something Abraham said earlier really struck a chord, which is there were a lot of broken hotels before the pandemic that are being dressed up as pandemic impacted. And so we've seen a lot of those, and we've passed. And the rescue capital has made it pretty difficult to find what you would call a recession deal, what we saw during and after the GFC. We're not seeing many instances of that. And in a lot of cases, the bid-ask spread is pretty phenomenal because the sellers are thinking that they will get 19 pricing, which they may. We're just not players in that space.

Deborah Friedland:Mark, I'm going to turn some rescue capital to finance for acquisitions and for new construction. I know those are two different animals. So can you speak to what type of financing is available to investors looking to make acquisitions or develop new hotels? In my discussions with the traditional lenders, many bankshave once again written-off hotel lending. But can you speak to what's out there?

Mark Owens:Certainly. Yeah. Thanks, Tom. It's been interesting, as I mentioned at the very beginning. This is not a liquidity crisis, and we started really tracking just lender engagement in hospitality the moment that the equity markets started becoming volatile right before all of the lockdowns. And what's fascinating to watch is within two to three weeks, we had already two or three opportunity fund lenders back into the market. And by June 1st, we had 23 lenders willing to underwrite hospitality. Today we have 147 different lenders, and they're across all lender types.

What is fascinating and to your point, Deb, is really the bank market has been relatively shut over the last, I'd say, up until the beginning of this year and in the last three to four weeks, we've seen the regionals and super regionals really come back into the space. And that's important because they bring our overall cost of capital down. And they also fund a lot of the lines that are debt funds you so help to compress overall strengths.

Unlike prior cycles, we've also seen, and as Scott mentioned, the life insurance companies remain active throughout the pandemic. And I'd say that the real inefficiency isn't necessarily from a capital provider perspective. It's really in the size of the transaction. So deals that are sub 30, $40 million, are much harder to finance. You have a smaller bandwidth of debt funds willing to play. You eliminate the overseas capital. And you really end up in sort of the local and regional bank market, which is still inefficient. And that's where you start seeing some expansion and spread and higher costs of capital, but deals above 50, 100, even 300 million-plus dollar deals, there is an appetite, and it's quite a substantial appetite. Give you a couple of real-life examples, we did a Boston transaction. It started as refi ended up going acquisition. That was a life insurance company.

We ended up with $10 million more in proceeds, and then we went out to market with a large Marriott in Newport Beach, $170 million deal that was with a debt fund, and asset management vehicle did a construction loan in downtown LA at the end of the year with an alternative lender we just closed on and acquisition and deep renovation facility for a large project in Waikiki that's with an APAC based bank. So international bank. And last week, closed on the acquisition of a large hotel in San Francisco with another debt fund provider.

So, that's been very instructive, and then to answer your question on the construction side, the debt funds playing in the space, very expensive. It is a spot to get yield, but the banks, some of the commercial banks are slowly starting to come back into that space, too, talking about much lower leverage points than what we saw pre-pandemic.

Then the other component too, which is interesting as we also have raised GP capital through the pandemic for a hospitality, well for two hospitality-specific investment funds that will play in the equity and debt space. So it's been interesting to see from that perspective.

Deborah Friedland:Can you give us some kind of range of arms that we might expect; I know we've talked about a lot of different things that can kind of give us an idea of where we're collecting electing kind of an array.

Mark Owens:Sure. Yeah, I'll try, and again, to your point, every deal is a bit different. What's interesting too is three months ago, I would've said that 55 to 65% leverage is really the new norm. It's the new 70, 75. I would say that even on the bank side of the equation, some of those institutions are getting back to 65% leverage, generally on the buy-side where there's really a true reset in value. So fresh equity coming in indicating what fair market value is versus, let's say, a refi. But we're also seeing debt funds now starting to creep up into the 70, 75% range. Our deal in Boston, as an example, was 72% loan to cost. On Waikiki, we had options that were up to 85% loan to cost that was a preferred equity piece coming in.

We ultimately ended up doing a JV on that transaction, so bringing in 93% of the stack and pricing while it is wider from a spread perspective is still within the realm of historically low levels. In the hotel space, year-end, we were probably around six and a half percent range. Today, I think for certain super durable assets, trophies, or resort markets, some of the extended-stay that haven't had an impact on or a reduced impact on their bottom lines. We're now seeing in the fives and in some cases for the right sponsor and the right brand and right location, upper fours. So the market is evolving really, really quickly, much faster than I would have expected coming into this.

Deborah Friedland:That's nice. I'm happy about it. Thanks. Charlie and Scott, we've been talking about leisure demand in our savior and all this pent-up demand out there, but the big question is always business travel and groups, not even seeing conferences startup. My question is, how comfortable is the consumer businesses to getting folks out there off the road? What are you seeing in the market? Rachael mentioned that they're seeing some recovery, but can you speak to specific examples where you're actually seeing us put in homes and sectors and Charlie, if you're comfortable, you want to start on it?

Charles Simon:Yeah, absolutely. So like many leisure has been leisure government pandemic-related, some sports of which you can really put into the leisure category. What we have been seeing, and I would say this is over the last two to three, even four weeks, small corporate groups, people that are starting their offices back up saying that they need to get a bunch of people into to get those offices back up, having strategic meetings and things of that nature. We've seen some of that demand. We have seen what we've been calling like kind of jokingly BT incognito, which is people not really wanting to fess up to the fact that they're traveling for work, but nevertheless, they arrive alone. They've got a suit, and there are no kids anybody around.

They're booking through the OTA channels, very hard to track, but nevertheless, we're seeing an uptake on that. But it's nothing that I would put a stake in the ground and say, "We've seen a true indicator that this is turning around." I think smaller companies, for sure, less red tape from the HR folks and the risk management folks. Those folks are definitely traveling. We're seeing that, things like steamfitters and training, or organized training companies have got to get people certified on certain schedules. We've seen that slowed. And then it's ramping back up. Things like that.

Deborah Friedland:Scott, Abraham either one of you want to comment on, if you're seeing the group business coming back and know that's the last to recover, but I think I'm starting to see some recovery there.

Abraham Hidary:Yeah. Similar to what Charlie was saying. We're seeing more inquiries more than anything else, rebuilding of old relationships where our salespeople are speaking to those corporate customers. Some of those conferences held on Hilton Meadowlands, which is under the largest hotels were ballroom space up in Northern New Jersey. So some of those conferences are starting to have the conversations again about coming back. We do a lot of weddings there, but while there's still restrictions in New York, New Jersey, we're not booking a whole lot. It's more inquiries and rebuilding relationships, so it's a hopeful sign, but it's really the leisure market that's going to carry the day at least probably for the next 12 months.

Deborah Friedland:Scott, are you seeing the same or do you have-

Scott Hochman:Yeah, no, I think I'm seeing the same as Abraham and Charlie. I think one segment that we're seeing a little bit more traction is in some of our DC hotels or seeing the kind of 20%, if you will, board meeting, we're seeing a bit of that, and most of it is tied to a government or a lobbyist group or something of that nature. So we're seeing that's a little bit of corporate traction that we're seeing in excited about. But other than that, the corporate is very small. In New York City, we've had a group come a few times, small medical, corporate ed call it, but nothing big to mention. It's quite still there.

Deborah Friedland:So it's still that we feel have a lot of work to do there. But I've no doubt that we will get there. So I've been doing this a long time, and I've seen a lot of cycles, never one like this. So what does the new normal look like? After 9:11, there was all these qualifications about terrorism. Now having this pandemic and it's kind of new reality or impact our industry going forward. So I'm going to turn that over to anybody want to volunteer on that, or shall I pick somebody? Okay. Charlie.

Charles Simon:It seems like I'm getting picked on here, figuratively and literally.

Deborah Friedland:You can answer.

Charles Simon:No, no. Seriously what I would say is I think there's been a lot of talk, especially last year, about how things are never going to be the same and people are going to just Zoom everything and travel is going to be down. I think after a year of this, what I hear mostly now is we can't wait to get going again. We can't wait to travel. We want to get back into seeing our teams. We want to be working face-to-face. We want to get our hands dirty. There'll definitely be a ramp to that. And that's okay. I think we're all underwriting that we're all expecting that there should be a ramp to that.

What we have expected so far has been worse than what has materialized. And I think that could be said for most people. I do think people will travel again, and I think you'll dip their toes in the water. They're large consultancy. I heard from recently said that they were going to go to a 50% travel model for a little while when they were at a hundred. And see how that goes once things are cleared.

But look, I'm the first one out on this question, and I'm putting my neck maybe out the furthest, but human beings are human beings. And I do believe ultimately we are going to, I don't know if we're going to get the roaring twenties where we're going to be wearing flapper suits and swinging dancing like they did the last time around, but I do believe that people want to get back to normal. And I think that they'll do if people were safe.

Deborah Friedland:Abraham, Mark, hand sanitizer and ultraviolet rays and all this other social distancing, is that a part of our new normal? Is that something that we don't get over?

Abraham Hidary:So I think it depends if you're asking about the next, let's say 12 to 24 months of beyond that. Because for the next 12 to 24, probably as beyond that, I would venture to say probably no, but I think there's going to be more accountability around cleaning. I know I've traveled a few times during the pandemic, and they would sort of put a piece of tape over the door of the room that you know that no one has entered the room from the last time it was clean until you're walking in. There was I think there were more controls where some type of bag, things like that. I think you can see. I think it makes the guests feel more comfortable that the room was cleaned really well. I think we're going to see the kiosks as were mentioned. I think some of the elevators are going to be converted to be touchless with our phones and our keys. Like we've had in some hotels for a long time, but a lot of hotels have lagged, so they needed to press buy, things like that, that I think you're going to see change.

On the revenue side, similar to what Charlie said. I do think there's going to be a ton. There's a ton of pent-up demand. But even if the corporate travel potentially doesn't get back to what it was for a very long time, I think the leisure travel is more than makeup for it. Considering now you can work from anywhere. I think a lot of businesses are going to be very flexible and allow for two, three day, weeks, less hours in the office. And there's going to be people that are traveling on leisure much more often, and working from wherever it is, their vacation so that hopefully will make up some of the loss in business travel.

Deborah Friedland:Thanks, Abraham. I think Rachael is still online. Rachael are you there?

Rachael Rothman:Yeah, I'm here. Yeah. I just had two things to say. If you don't mind and they might not be exactly what you were looking for, but first, if you look at the historical P&L database that I was talking about earlier, you'll see that in each recession, the hotel industry has gotten more and more efficient with its cost structure. And I don't have the side here, but I'd be happy to share it with your audience because it really is fascinating how they've gotten more efficient cutting on the way down and more efficient on the rebound. So I think that there is some optimism there.

Then number two, I know you guys touched on it earlier, we have an internal services team that deals with network technology, and I was doing some work with them earlier in the weekend. I think you guys brought up a great point, which is, we should think about this isolation, personalization, customization, and what technology allows you to do as really an opportunity for incremental revenues and upsell as well. There's technology, as you mentioned that you can be sitting at the pool without moving ping, ping pam, and you order the four ice cream sundaes because you don't want to get up. And then it says to you, "Hey, Rachael, did you want the marguerite is in chips with that?" Boom right to your chair.

Or if you're talking about a resort where you might have three or four different restaurants, I don't know, sushi, Italian, Indian, American, right? Let's just say they've got the full gamut. Maybe it doesn't make sense to keep all of those restaurants open from 11:30 to 1:30. You could just have them open for an hour, but you can have people able to order from any restaurant at any time, just in the kitchen.

So that technology allows you to cut back on service staff that are just waiting around to service somebody. You've got the kitchen going, but they're only running out to bring people food that they wouldn't have ordered otherwise because they didn't have to get up to do it. And it can upsell you anything from spa services to personal trainers. "Hey, somebody canceled. I know you're free right now. Do you want a session for 30 bucks?" It keeps the trainer happy. It keeps the guests happy, and no one's coming around trying to sell you something which makes people uncomfortable.

So as you guys think about putting in new technology, what can be done to customize the guest experience and oh, by the way, this is all free to you, hotel owners, and this costs you nothing to implement this technology. There is a great opportunity to both drive revenue and profit without layering, in fact, additional costs. So just a few thoughts there.

Deborah Friedland:Yeah. And I think that pre-pandemic, we as an industry, we're very slow to embrace technology. I remember years ago, Hyatt tried to roll out that kiosk at the desk, and they found that consumers just would go the attendance. They weren't comfortable with it. So I think it's really been a chance and opportunity for the industry to really embrace technology because the consumer is open to it. And it's an opportunity to cut costs. We've already talked about that as well that we have such a high extent level and many of the police service poverty. So here's our chance.

So I know that those owners and assets that were tech-heavy and that embrace technology early really did much better than the assets that was slow to evolve their technology. So hopefully, there's a balance between technology and the experience that they have hospitality industry really promises to consumers.

So we are winding down. I don't know if we have any questions from the audience that we could take. Lexi, I think you're still there. If there's some questions from the audience.

Abraham Hidary:I do see a question down in the chat from Richard David asking whether a large hotel owners are looking at strategies for conversion or partial conversion of properties to residential. It's something that we had hit rock have looked at and thought about not just residential, but office. And it is absolutely being looked at across New York City in particular. And it's driven, I'd say believe it or not, mostly based on zoning. There's these big box hotels that are very difficult to convert to residential because of light and air requirements that are needed.

Every bedroom needs to have a window with 20 feet outside. And when you have a very, very deep hotel that maybe has a lot of amenities and services, the numbers aren't going to underwrite to a residential, if you can't utilize that space. So those would really be office conversions. And on the flip side, you also have zoning FER requirements that are different for commercial versus residential. So every project is its own analysis, and it's something that's being considered across New York city by owners across the spectrum.

Deborah Friedland:To add to that, maybe I see a lot of clients come to me about convergence, and initially, there was residential. And then they backed off a bit given the high suppliers residential and the cost to convert. But to your point, it works very well in other markets where the housing, especially multifamily, is the supplier scare. So I'm seeing quite a bit of that even through assisted living. I don't see any other questions unless Abraham, you seem to be directing this well, but I don't see any other question.

Rachael Rothman:There's one Deb. I'm not sure if we're supposed to say the gentleman's name, but the question is, why has hospitality shown elasticity? It's been a mystery to me. I don't know, something referred to analogy after 9/11 when hospitality restarted after about six months. I think I can not refer to an analogy after 9/11 when hospitality restarted after six months. So what are everyone's thoughts on hospitality or elasticity of demand basically?

Deborah Friedland:In terms of hospitality is a one nightlease ], right? So it's the extremely quickly changes and supply and demand. So that's how I would explain, but it would dramatically change. Do you have any of the other Abraham?

Mark Owens:I think to your point, Deb and Rachael, we're in a period where this is very different, and everyone on this call, we've all been separated from each other, and people are getting out there and traveling number one and doing it, whether it's hybrid business or leisure, I think is the new term that was coined a couple of weeks ago and one of the articles. But I think you're seeing that merging of business and personal because candidly, most of us have been working in our homes, and businesses become personal through that. I think we've developed more connections with people through Zoom and through all these calls over this pandemic, but now we actually want to see them. And that's huge, or have experiences that no one's had for the last year.

You compound that with the fact that the capital markets, while they are liquid, it's really hard to build new hotels right now. So, I think from that perspective, we're going to be in another period where with the exception of a select few, you're not going to see the supply pipeline continue to ramp up aggressively. And we've seen that historically, where you have a resurgence of demand, supply is constrained, particularly in these gateway markets where we have issues that are preventing profitability for quite some time. And to Abraham's point, people are removing inventory of hospitality to convert to alternative uses. So I think that all bodes really well for the mid to long term for all of us collectively in the business.

Rachael Rothman:Just to add to what Mark said, and I think this has something to do with us staying at home for the past year. We've seen household savings to take an economist perspective on the same thing. Americans have about $3 trillion in their bank accounts today. And that's triple what it was just a year ago because everyone stayed home. And if you combine that with the point that we're not redeemed from people's credit card spending and all of their status was continued or extended through 2021. I think what you're starting to see is people's willingness to burn down some of that discretionary cash and those points.

Deborah Friedland:I'm going to sum up and say that we are in the first inning of a recovery that I think will be stronger than any cycle that we've seen. My neck out with that for those who are entering investments, hotels, everyone obviously, you're always make sure that you're careful and do your acquisition due diligence, but I think it's a tremendous opportunity for the industry, and I'm extremely excited.

So I am going to say thank you to our panelists for joining us, providing insight on the recovery of the hospitality sector. I want to thank our audience for joining us today. Our next webcast in the real estate in the pandemic series will be on May, 4, and it's going to be focused on how real estate investors are looking at risk differently, given the changing dynamics of the real estate market. And again, thank you. And if you have any questions, please reach out. And if you have any questions for the panelists specifically, I'd be happy to forward those or feel free to contact them directly. Thank you.

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Deborah S. Friedland

Deborah Friedland specializes in in operational strategy analysis, asset management, valuation, internal control review and assessments, market studies, and transactional due diligence for investors and lenders.

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