It’s Triage Time in the Northeast Ohio Hospitality Industry
Hotel owners and operators are beginning to pick their shots as the COVID vaccine era begins to send leisure, if not still business, guests once again.
This is the picture that is beginning to emerge from recent real estate offers, foreclosures and sales. It was impossible to pick such shots to keep the country when the pandemic gripped the nation and the region from March 2020.
Case in point: New York-based Taconic Capital Advisors, a private equity operator that has the Courtyard By Marriott and TownePlace Suites on adjoining lots on Engle Road in Middleburg Heights in its portfolio, is offering both for sale on a Ten -X online. Capital auction on July 19.
Both have minimal asking prices, typical of auctions: $1.1 million for the 94-suite TownePlace property and $2.7 million for the Courtyard. The properties were acquired in 2014 by the current owner for $6.8 million for the TownePlace and $14 million for the Courtyard.
Although the ownership has not been changed, online publicity notes for the auction indicate that the properties are controlled by the lender and owned by institutions. However, Taconic did not offer other properties purchased at the same time, such as identical TownePlace and Courtyard properties in Westlake that were built at nearly the same time.
Mike Schlichtman, principal of Paramount Lodging Advisors of Chicago, which markets Taconic properties in Middleburg Heights, declined to comment on the offer.
There may be good reasons to get rid of properties in Middleburg, which are part of the region’s airport market, and keep others.
The first whiffs of better times as vaccines and the economic recovery take hold may help other properties, but not those in the airport market.
David Sangree, president of hotel advisory firm Hotel & Leisure Advisors LLC in Lakewood, said in a telephone interview that he believed the closure last year of the IX Center in Cleveland signaled a challenge for the airport market that would expand. beyond the pandemic.
“With air travel starting to improve, you can expect the airport market to improve over time,” Sangree said. “However, with the closure of IX as an event center, the future of this market is more uncertain and could affect demand for these properties.”
Data from online hotel provider CoStar indicates that the impact is already clear. Traditionally one of the strongest hotel markets in the region, along with Beachwood and the eastern suburbs, the airport market’s occupancy rate is now only slightly better than the market as a whole, at 42 % versus 39% for all of Cleveland, according to CoStar.
Another case of shooting is apparent closer to the airport.
This is where a subsidiary of Ceres Enterprises of Westlake is pursuing the multi-million dollar conversion of the former NASA DEB (Development Engineering Buildings) into a hotel and apartments. Meanwhile, less than a quarter mile away, another Ceres-linked property, the Hilton Garden Inn Cleveland Airport on Emerald Parkway, was sued May 28 for foreclosure by its lender after it defaulted on payments due in under a $14 million lender.
Obviously, a new hotel is worth more than a nearly 20 year old hotel in the best of markets. And more so in one of the worst in generations.
Two Fairfield-flagged hotels, in Avon and Beachwood, were subject to seizure, according to Cuyahoga County and Lorain County court records.
However, the most distressed hotel properties were at risk before the pandemic, according to Trepp, a New York-based reporting service that tracks securitized mortgages and other commercial mortgages.
They are, respectively, the DoubleTree by Hilton in Beachwood, which is already owned by a lender, and the downtown DoubleTree on Lakeside Avenue, which is pending in Cuyahoga County court after the lender filed for foreclosure in 2019.
In the end, the precipitous drop in demand during the pandemic has so far failed to push a plethora of hotels into the hands of lenders.
Sangree said when the pandemic hit in the spring of 2020, no one in the industry knew how things would play out.
“We found that lenders were more willing to be flexible than they were in 2008 (when the Great Recession hit),” Sangree said. “However, some landlords say they are willing to pay lenders a fee for forbearance. But that doesn’t mean they won’t be subject to foreclosure later.”
The other unexpected factor was the willingness of the Small Business Administration, first under former President Donald Trump and now under President Joe Biden, to provide Paycheck Protection Program (PPP) loans to maintain employees at work.
Several analysts say this has helped the industry avoid a more serious dislocation.
Another sign of the slowly improving outlook for the accommodation market is that some hotels are selling again, albeit at deep discounts.
To examine the bullish case for the hotel industry, consider the perspective of Chris Patel, president of Itasca, Illinois, NexGen Hotels. His company, through a subsidiary, has just purchased the Four Points by Sheraton Cleveland Airport on West 150th Street.
NexGen paid $3.8 million for a full-service, six-story hotel that the seller paid $4.8 million less than seven years ago.
“This property will be 70% occupied over the next four days,” Patel said in a phone interview, referring to June 17-21. “Activity has increased significantly since leisure travelers are active again after being vaccinated against COVID-19.”
NexGen delayed buying the Four Points for a year due to the onset of the pandemic, he said. However, he felt convinced enough by renewed activity to pursue the deal, which NexGen bought at a steep discount. He is less concerned about the disappearance of the IX Center for events. He believes the biggest factor was the surge in new hotels downtown and in the area ahead of the Republican National Convention in 2016, which saturated the market.
However, Patel pointed to Cleveland’s buying fundamentals, which have boosted his confidence in uncertain times, albeit on the upside.
“We paid less than $50,000 per key in this transaction,” Patel said. “That’s way less than replacement cost. We just completed a hotel in another city for $140,000 a key.”
It may take several years for the Cleveland market to fully recover, he said, but that could be tough for the company to top. But it’s the kind of long-term vision demanded at times like the ones the pandemic has produced in the region and the country.