NYC hotels buckling under weight of Covid rules and debt

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The city, once the epicenter of the Covid-19 pandemic in the U.S., faced an uphill climb on the tourism front through the summer.
The city, once the epicenter of the Covid-19 pandemic in the U.S., faced an uphill climb on the tourism front through the summer.

For most New York City hoteliers, business prospects have only gone from bad to worse.

The city -- once the epicenter of the Covid-19 pandemic in the U.S., but now with one of the lowest rates of infection among major metropolises -- faced an uphill climb on the tourism front through the summer, with STR reporting that August hotel occupancy in the market was down 57% versus the same month last year. (By comparison, overall U.S. occupancy was down 31.7% year over year in August, according to STR.)

In mid-August, New York hotels were dealt yet another setback in the form of an executive order enacted by mayor Bill de Blasio, requiring hospitality operators to have guests coming from hot zones sign a two-week quarantine form prior to check-in.

As of late September, travelers from 35 U.S. states and territories are required to quarantine for 14 days upon arrival in New York state.

Vijay Dandapani, CEO of the Hotel Association of New York City (HANYC), which represents roughly 300 properties, called the mayor's form mandate "befuddling."

Vijay Dandapani
Vijay Dandapani

"The order has killed any signs of life we'd been seeing," said Dandapani. "We saw some business coming back toward the end of July and early August, but as soon as the city put that order in place, it basically disappeared."

Although the burden of actually enforcing a traveler's quarantine falls to the city and state and not the hotels, New York City's policy has made a difficult situation more dire, according to Dandapani.

"People are either just not going to come, or they are coming but clearly lying about where they've come from, which defeats the purpose of public policy," he said.

Instead, the HANYC is in favor of a policy similar to those in effect or set to go in effect in places like Hawaii, Alaska, Rhode Island and Maine. In those markets, travelers from restricted states who obtain a negative Covid-19 test result can skip an extended quarantine.

Hawaii, for example, plans to launch its pre-travel testing program on Oct. 15, permitting travelers to bypass a 14-day quarantine if they test negative for coronavirus within 72 hours of arrival.

Policymakers are hoping the program's rollout will help revive Hawaii's tourism industry -- which, like New York City, has seen visitation plummet in the pandemic -- while still prioritizing safety. 

"We welcome visitors on Oct. 15 who are willing to comply with the standards of care and rules that are in place," said Kekoa McClellan of the public affairs and government relations firm the McClellan Group and an American Hotel & Lodging Association spokesman for Hawaii. "Our hotels already have the authority to choose who stays on-property and to enforce the law by notifying authorities if guests don't go by rules of play here at our properties and in the state."

The hospitality group is looking to cater to college students looking to upgrade from a dorm to a more socially distanced accommodation offering.

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For New York City hotels, however, quarantine policies are far from the only regulatory hurdle. 

On Sept. 30, the city's restaurants will be permitted to reopen indoor dining. While that's generally good news for the hospitality arena, the fact that indoor dining spaces will be limited to 25% capacity has put a major damper on the restart.

"We requested 33% capacity, and most restaurateurs have actually told me they need 50% to be all right, provided there's some benevolence from their landlords," Dandapani said. "But at 25% capacity, it's a joke."

With tourism sluggish and indoor dining capped, Dandapani pointed out that for many New York City hotels, it makes more sense to remain closed. 

"We've resigned ourselves to the fact that 2020 is a washout, and the first quarter [of 2021] will be terrible," he said. "Many hotels are simply not opening all the way up until April or even June of next year. Some have even told me they're not opening until 2022."

According to PricewaterhouseCoopers' second-quarter Manhattan Lodging Index, released in mid-September, around 58% of the city's total inventory -- or 61,450 hotel rooms -- remain shuttered.

Loews Hotels & Co.'s 379-room Loews Regency New York on Manhattan's Upper East Side is among those that have opted to stay closed for the time being. 

"In New York, there's no way to mask the fact that the fall and winter are going to be tough," said Alex Tisch, Loews Hotels & Co. president. "U.N. week is canceled. The marathon is canceled. Thanksgiving has gone virtual, and Broadway is still dark."

While Tisch confirmed that operations will eventually resume at the Loews Regency New York, other properties in the city look likely to shut down permanently. This includes hotels like the 398-room Omni Berkshire Place, which announced on its website it had closed for good, and the 478-room Hilton Times Square, which is reportedly set to close Oct. 1. 

As mortgage debt mounts, more closures are expected. According to a Trepp report released in late June, the New York-Newark-Jersey City metropolitan area had a combined commercial mortgage-backed securities delinquency balance of $6.8 billion -- far and away the largest of any market in the U.S. The lodging sector accounted for the vast majority of that balance, at approximately 40% of that total. 

But despite the challenging environment, some, including Loews' Tisch, remain bullish on the city's longer-term outlook.

"There's no place that's more resilient than New York," said Tisch. "Eventually, people are going to want to come back see the great things that places like New York have to offer, which, frankly, resort destinations just don't have." 

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