The hospitality industry is looking forward to major upturns in 2021, with some projecting a $25 billion revenue increase from 2020 to 2021.
However, not all are going to be able to benefit from the year’s gains, with the September 3, 2021, bankruptcy filing of Saline Lodging Group, LLC displaying just how difficult it has been for small hospitality businesses to make it out of the pandemic.
The Saline, Michigan-based company filed for Chapter 11 bankruptcy, citing major debts — though the company has between $1 million–$10 million in estimated assets, it claims the same range of amounts for its liabilities, putting the company in a difficult position.
According to Michigan Live, the company owns a half-built Best Western in Saline — a project which has remained in “construction limbo” since 2020 after originally being intended for opening in 2018.
As per the report, the project “ran into litigation snags as the general contractor, Peters Building Company, was sued by multiple contractors who allege they were not paid for a combined estimate of $646,000 of work.”
Saline Mayor Brian Marl noted that Saline Lodging was running out of time to complete the project and that it was “very likely” that the project would be auctioned at some point in 2020.
“They are still continuing their efforts to try and secure additional funding to complete the hotel,” Marl said. “Although, to use a sports analogy, they’re kind of in the last two or three minutes of the fourth quarter. So time is of the essence.”
Acoustic Ceiling & Partition Company originally sued Peters Building Company and Saline Lodging July 2020, claiming that Peters Building owes Acoustic Ceiling & Partition more than $156,000.
Beyond the lawsuit, the company has significant debts owed to construction creditors, with numerous debts to contractors, suppliers, or manufacturers totaling at least $680,262.59. The largest part of the company’s debts includes four lien claims on the company — filed by Chelsea Lumber Company, Hoffman Plastering, LLC, Quality Roofing, Inc., and Tri-County Electric Group — which total $571,300.59.
Chapter 11 bankruptcy — commonly known as reorganization bankruptcy — allows for a company to remain in possession of a number of its assets and control its business operations while developing a structured plan to repay its debts, thus leaving the door open for Saline Lodging to recover and restructure itself long-term.
Despite an upturn on the horizon, developers are turning away from hotel construction — especially those focused on short-term issues
Saline Lodging’s bankruptcy isn’t just a blip on the radar of hospitality investment in 2021.
As per prior Levelset reporting, major New York investor Hospitality Investors Trust, Inc. — which in the fourth quarter of 2020 had a $2 billion investment portfolio focused on partnerships with major international franchises such as Hilton, Marriott, and Hyatt — filed for Chapter 11 bankruptcy protection on May 19, 2021, entering an agreement to give control of the company to Brookfield Asset Management, Inc.
The issues seen by the hotel industry in 2021 don’t come without some positives. A report from the National Center for Business Journalism noted that the industry is indeed seeing recovery signs, noting that “revenue is slowly recovering. The AHLA estimates that the industry’s revenue will be $110 billion, up from 2020’s revenue of $85 billion…It’s still a net loss [from pre-pandemic levels]…but a recovery nonetheless.”
However, Ali Hoyt — senior director of consulting at STR Inc. — noted that it’s historically common for the hotel market to see a slowdown in September of a year. “We’re anticipating a continued slowdown of that leisure demand post Labor Day.”
These annual precedents haven’t led to companies leaving their guard down just yet. Marriott International Inc. President Stephanie Linnartz noted in an interview in August 2021 that the worldwide hotel company was closely keeping an eye on the changes that the Delta variant of COVID-19 were having on the industry, saying that “We’ve all had our eye on September.”
Linnartz said Marriott had been seeing cancelations “here and there” for group bookings but new reservations for that type of travel were continuing to occur as well. “It’s too early for us to say if we’ve seen any significant impact from the Delta variant in terms of our recovery.”
These issues have impacted companies’ construction plans already, but many of them are hoping to push through delays and benefit from a possible recovery in the near future.
A major example of this comes from the development of Marriott’s own SpringHill Suites by Marriott hotel in Amelia Island, Florida, which pushed through pandemic-induced delays to open in May 2021 and serve as the brand’s 500th hotel.
“I think that things will continue to get better month by month and quarter by quarter,” Linnartz continued. “It doesn’t mean we won’t maybe have to, in certain parts of the world, [take] one step backwards, two step forwards…that’s the definition of being choppy.”
In keeping with these thoughts, Hoyt added that “Even though it was a busy summer and we’re encouraged to see growth in [leisure travel], we still know it’s going to be a rocky road ahead for many markets.”
Major areas nationwide that have historically been drivers of the industry are struggling. A recent report from the Boston Business Journal’s Catherine Carlock noted that even though “Pre-pandemic, the hospitality industry in Greater Boston was among the strongest in the US,” there hasn’t been enough business to change the outlook of many developers.
Carlock’s report adds that there could be a shift in the type of construction being done, noting that “there are developers who had planned to build boutique hotels — like Hotel Alexandra and Hudson Group’s 150 Kneeland St. project — who are now shifting to residential projects after examining dire economic projections.”
Boston attorney In a letter to city planners outlining why the developers of Boston’s Hotel Alexandra are looking to pivot away from boutique hotels at the property, attorney Marc LaCasse cited the “harsh economic reality” of the pandemic on the hospitality industry and the slow turnaround time experienced by developers.
“Much has been written concerning the state of the hotel market in Boston and the consensus is that an economic recovery of the leisure, business, and convention hotel room market to pre-pandemic levels will not occur until 2025,” LaCasse wrote in a notice of project change for the Hotel Alexandra this summer.
In addition, many “Mid-tier hotels are still struggling to recoup the losses from the evaporation of business travel, with some owners…deciding to cut those losses and list their property for sale” — a situation which could certainly lead to more hospitality investors changing their mind about construction in the near future.
The report also notes that a return to normal hotel occupancy levels (which CBRE pegs as 75% occupancy) isn’t expected until 2025.