Covid-19 Is Taking a Toll on Plans for New Hotels

Covid-19 Is Taking a Toll on Plans for New Hotels

Monday, August 31, 2020

Covid-19 has had a devastating impact on the hotel industry, and that pain has extended to the planning and construction of new hotels.

So far this year in California, 35 hotels with a total of 3,500 new rooms have opened in the state, and 194 more hotels are under construction, according to a new Atlas Hospitality Group report.

In Los Angeles, however, only one hotel opened in the first half of the year, the 24-room Prospect Hotel in Hollywood.

Atlas Hospitality President Alan Reay said many more hotels have been completed but postponed their opening due to Covid-19. In all, the number of hotel rooms planned for California this year has increased 9%.

L.A. has 49 hotels with 7,650 rooms under construction and leads the state in number of hotels and rooms in planning. However, the number of hotels under construction statewide decreased 17% from 2019.

“On the development side, it’s such a long lag time that we are not really seeing the effects (of the pandemic) right now,” Reay said.

But, he added, not all hotels that are planned or under construction will actually be finished, and if the buildings are completed, they may not open as hotels.

“The vast majority of deals in planning right now simply will not get built,” Reay said, estimating that 75% to 80% of hotel projects won’t be finished due to the pandemic.

Banks, he explained, are pulling out of existing financing in some areas, and getting financing for a new hotel project “is virtually impossible.”

Brandon Feighner, a managing director at CBRE Group Inc., added that hotels can take as many as seven years from conception to opening, so some in the early stages could open during an upswing, but not all projects are in good shape.

“Hotels are still being developed but not everything that is in the pipeline may open,” he said.

Markets impacted

In the first half of 2020, L.A. hotels saw occupancy decrease by 41.4% and revenue per available room (RevPAR) decrease 50.8%, according to data from CBRE. “Things started out well in January and February,” Feighner said. “As the pandemic reared its ugly head, it was a tough remaining four months of the year, and overall we are projecting by year-end 2020 a 59% decrease in RevPAR, which is the worst we’ve seen in a long, long time.”

“It’s undeniably a tough market right there. A number of hotels were closed over the last couple of months,” he added.

Hotels that are still open are doing extra cleaning, serving meals in boxes instead of buffets and doing things like having guests make appointments to use common areas like gyms.

Some markets in L.A. are feeling the effects of Covid-19 more than others.

Feighner said the lack of conventions and events at Staples Center has been a huge loss for the surrounding area.

“The hotels in the markets that are reliant on convention centers like a downtown L.A., which last year was a very strong market … because of the coronavirus and the cancellation of a lot of conferences and people not going to meetings, that area has taken quite a big hit,” Reay said.

Coastal markets, he added, were faring better.

Multifamily conversions

Reay expects some planned hotels to become multifamily projects, especially in areas like Mid-Wilshire and Koreatown “that are already pivoting to convert those uses to residential.”

Feighner said existing hotels may change, too.

Some hotels “will be converted. Not every hotel that was closed during the pandemic will reopen. Some will be repurposed for residential uses or creative office,” Feighner said.

Reay added, however, that extended-stay hotels are doing better. Feighner said smaller properties and hotels in rural areas were doing a bit better than large hotels.

He added that hotels that remain open, beyond extra cleaning, are also adapting more technology such as checking in with phones.

Short term, the hotel situation may be dire, but once there is a vaccine, Feighner expects more people to come to L.A. and its hotels, especially for events like the Olympics.

“Mid to long term,” he said, “we’re still very bullish on Los Angeles in general.”

atlashospitalitygroup hospitalityindustry hotelnews

Contact details

Recent Listings