Should You Keep Your Pandemic Affected Hotel?
The hospitality industry has been hit extremely hard by Covid 19. While the world is slowly re-opening and getting back to normal, people are traveling much less than past years. This has led many hotels to make tough decisions as they deal with significantly decreased cash flow.
The question of whether or not to sell your hotel property is going to be an individual decision based on your own unique needs. However, various factors can indicate whether it is time to sell or whether you may want to hold out longer.
Reasons Why You May Decide to Sell
- Long Recovery Timeframe. If you are operating at a loss and have been for quite some time, you should strongly consider selling and getting out with at least a slight profit before the property has to be given up.
- Debt Considerations. Refinancing loans during the pandemic has been significantly more difficult than usual. Flexibility in loan structure has been lacking due to uncertainty with the current world circumstances. Depending on your debt situation, you may consider selling.
- Two or Three Months of Significant RevPar. RevPar (revenue per available room) is a measure that investors look at to determine interest in purchasing a hotel. Investors seem to be looking at figures from just a few strong months of revenue in the past year as they relate to peak levels in 2019, rather than figures from the entire year. Therefore, you may consider selling if you fit this requirement for investors and stand to make a profit.
- Large Conference Rooms. It looks like large, in-person conferences will not be back for a while. Therefore, owners of hotels housing high-capacity event centers may consider selling or potentially selling a portion of their facilities.
Reasons Why You May Decide Not to Sell
- Positive Debt Situation. You may find yourself in a situation where you are still lacking in revenue, but there is the potential for a positive outcome in the foreseeable future. This may be a scenario where there is likely to be a change in branding or a planned expansion that could increase the value of the property in the times to come.
- Outside Help. Government assistance through programs such as the Paycheck Protection Program have assisted in keeping many businesses afloat during this past year. Additionally, because the effects of the pandemic are not isolated to certain businesses or industries, most lenders are extending payment deadlines to allow the loan recipients time to recover. Unless you find yourself in a situation where you are unlikely to recover under any circumstances, you might consider holding out.
- Travel Slowly Increasing. As vaccination distribution and some mandates are being lifted, more companies and individuals are growing more comfortable with returning to previous travel practices. If this trend continues, hotels should see an increase in guest count and revenue.
Final Thoughts
The decision to keep or sell your hotel is not one to be considered lightly. There are many factors specific to different areas and situations. It is important that all hotel owners closely examine their current circumstances and make an informed decision.
Hi! We’re Josh and Jolene Baijot, the creators of this website. We’re also commercial real estate brokers in Bellingham, Washington. Thank you for taking the time to read this blog post. We appreciate your time spent on this site. You can connect with us on Facebook, Instagram, or contact us through this website.
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