Orange County Partnership - News

Hotels Showing Signs of Recovery from COVID

As health and safety restrictions continue to be lifted across the nation, the hotel industry, which was battered by the coronavirus pandemic, is showing signs of improvement.


Amanda Dana, director of Orange County Tourism & Film, reports that occupancy rates at Orange County hotels are increasing as the market enters the second quarter of 2021.


“There are a few factors that are contributing to the uptick in hotel occupancy for Orange County,” she said. “The strongest factor is that traveler confidence is on the rise as restrictions are easing. From a public health perspective, as we see the percentage of the population become vaccinated, overnight stays will be desired more and more by visitors.”


She added that due to Orange County’s prime location in the Metro-New York City market, “pent- up demand to travel will occur sooner this year than last year. Lastly, the opening of the LEGOLAND New York Resort later this spring has reinforced the recovery of tourism and hotels, who are either in planning or under construction, that will be pushing forward to capitalize on the much-needed rooms for this highly desirable area.”


There are indications that the hotel/hospitality sector is on the road to recovery, albeit a slow one.


U.S. hotel occupancy remained flat during the week of March 28 to April 3 from the previous week, while the country’s the Average Daily Rate (ADR) and Revenue Per Available Room (RevPAR) levels were at their highest since the beginning of March 2020, according to hotel analytics firm STR.


The national hotel occupancy rate was 57.9%, the ADR was $112.76 per room and the RevPAR was $65.33.


The occupancy level was one point below the pandemic peak reached two weeks prior. The RevPAR value represented 73.1% of the comparable 2019 level, which is the closest the U.S. has come to RevPAR recovery territory in STR’s Market Recovery Monitor.


Among the Top 25 markets included Tampa (84.0%) and Miami (75.9%), which experienced the highest occupancy levels. The lowest Top 25 occupancy levels were in Minneapolis (39.2%) and Boston (42.0%).


On April 6th, STR reported that the United States led the world in new hotel and room openings during the first quarter of this year. However, the report indicated mixed results for the hotel sector in the U.S. as the nation’s hotel construction activity continues to decline in comparison with pre-pandemic levels.


Over the three-month period, the U.S. opened 220 properties accounting for 26,057 rooms. Four additional countries opened more than 2,000 rooms during the same period: China (12,418 rooms); Japan (2,499 rooms); Australia (2,382 rooms) and the United Kingdom (2,214 rooms).


The number of rooms currently in construction in the U.S. is down almost 34,000 from the country’s all-time construction peak (220,207 rooms in April 2020).


There is a total of 186,269 rooms in construction, another 237,703 rooms in planning stages and another 214,287 rooms in final planning. Among key U.S. markets, New York (21,055) and Las Vegas (8,579) lead in room construction.


Brokerage firm JLL recently released a report on the U.S. hotel debt market which indicates major lenders are returning to the market. JLL’s Hotel Investment Banking team, which is currently engaged in more than $2 billion of hotel financing assignments, stated that as the lodging industry continues to head down the road of recovery, the hospitality debt market is getting healthier.


“The continued resurgence of the debt markets will be a highly powerful lever to activate in order to maximize sales proceeds to our clients,” says Adam McGaughy, a senior managing director with JLL’s Hotels team and based in Chicago. “Many of the first-class hotels that we have on the market for sale are getting significant bid depth and we are seeing investors get more aggressive with their underwriting given improving operating fundamentals and attractive debt terms.”


“While lenders continue to remain highly selective, we have seen a remarkable compression in spreads and LIBOR floors for hotel loans over a relatively short time span, and continue to engage with these lenders reentering the space,” added Jeff Bucaro, an executive vice president with JLL Hotels. “We expect liquidity to heavily increase in the sector as business and group travel recovers, and as lenders continue to seek higher-yielding opportunities.”


In JLL’s recently released Hospitality Debt Market Commentary, the brokerage firm identified a number of prevailing trends in the hospitality sector, including:


  • Debt funds are the most active lenders, followed by banks, insurance companies and CMBS, which still remain selective for high-quality assets. There are also significant spread comparisons with the debt funds, with bank spreads remaining steady since Fall 2020.


  • Banks continue to provide the lowest cost of capital, however, its pricing advantage has narrowed as debt fund spreads have compressed.


  • There is greater liquidity for acquisitions or cash-in re-financings. And while debt funds prefer to quote acquisitions, most are also actively quoting re-financings.


  • Leverage levels have increased as banks and insurance companies are willing to push leverages to 55%-60%, which is up from 50% in the Fall of 2020. The debt funds are also willing to push leverage to 75%-80% for the best, high-quality assets.


  • “In favor” drive-to-leisure resorts and trophy/luxury asset types are in demand. Financings for these asset types are generating the most attention, followed by high-quality assets in good, long-term markets at a modest loan basis.


  • In select states, retroactive CPACE financing represents a creative source of capital for recently developed or renovated hotels.