There's finally hope a return to some normalcy will occur in 2021, as Covid-19 vaccination supply ramps up and case counts are on a downward trajectory.
But nearly a year since the first stay-at-home orders were issued in Mecklenburg County and the state of North Carolina, the Charlotte hotel industry is still reeling. The sector and its employees have felt tremendous impacts and revenue loss as business travel shut off, conventions and large events were canceled, and tourism scaled way back.
The federal Paycheck Protection Program and a city of Charlotte recovery grant program have helped companies survive, but occupancy and rates are still far below pre-Covid-19 levels.
Data from analytics company STR from the week ending March 6, the most recent available, found Charlotte hotel room occupancy at 47%. Average daily rates, or ADR, hovered at $80 and revenue per available room, revPAR, was $37.64.
In 2019, Charlotte's occupancy rate averaged 68.3%, compared to 43.3% in 2020, STR found. ADR was $111.22 in 2019 and $86.53 in 2020, while revPAR went from $76.01 to $37.47.
The most recent numbers from March 2021 are certainly an improvement from last April, when the market bottomed out. But as the economy slowly reopens, hotels may still have awhile yet before seeing a true rebound. In fact, economists and industry watchers predict the hotel industry won't fully recover until 2023 or later.
Vinay Patel, principal at SREE Hotels, a large hotel owner based in Charlotte, said in January and February, the company was down 62% and 57%, respectively, across its portfolio compared to early 2020. So far in March, the numbers look a bit better — 32% down — but the calendar has reached a point when bookings and revenue severely dropped off because of the pandemic.
For an area like uptown, where corporate travel is that hotel market's lifeblood, the pain persists.
"Uptown Charlotte is dead," Patel said. "Anywhere that you’re looking for corporate transient or group business, it’s not there."
Hotel companies frequently have properties in multiple markets, some that attract business- and airport-driven traffic — like Charlotte — while others bring in more leisure travelers. Developers and owners report hotels in popular tourist areas, like beach towns and the mountains, have outperformed business-driven markets through the pandemic.
Recovery also depends on how a state government has handled reopening. States like Florida are seeing better occupancy numbers and rates than others with more restrictions in place, said Birju Patel, president of High Point-based BPR Properties.
Charlotte-based OmShera Hotel Group is finishing construction on a 135-room Hyatt House hotel at Rea Farms, which will deliver in late June. The company also has hotels in the Piper Glen area and Pineville.
The Ballantyne submarket, right now, is hovering around the upper 40% to 50% occupancy range, said Kush Anandani, director at OmShera. He said he wouldn't use the word rebound to describe activity so far in 2021, but added midweek travel has been picking up. Since the pandemic, most hotel operators have been focused on luring weekend travelers, Anandani said.
Locally based H&B Hospitality Management owns four hotels in Ayrsley, in south Charlotte. First-quarter results have been at about 75% of what H&B budgeted for in October, which was already lower than prior projections, said Tyler Birchfield, company president and chief operating officer.
Occupancy has hovered close to 50% in recent months but ADR is diluted, with 95% of H&B's current business coming from leisure travel, he continued. Bookings are looking better for April and May but much remains to be seen.
"We see some good signs but we’re a little hesitant to uncork the champagne," Birchfield said.
Projects on hold
About a year ago, BPR Properties filed paperwork to obtain a building permit for a 208-room Moxy Hotel in uptown Charlotte. It was two weeks away from closing on a loan for the project.
The goal was to get the permit approved by May, secure financing, then break ground by July, right before the Republican National Convention, said Birju Patel.
Instead, lockdowns began, debt markets froze and BPR was shuttering hotels and furloughing employees.
And while BPR's 22 hotels have seen a solid rebound since the start of 2021 — even its uptown Embassy Suites is 80% to 90% booked on weekends — the Moxy remains on hold.
The outlook for new hotels remains largely iffy but there are still opportunities. Birju Patel said he closed on a loan two weeks ago to finance a new Homewood Suites in Greenville, North Carolina. The company has six hotels actively moving forward in its development pipeline.
But what's getting financed are smaller hotel deals — usually in the $15 million to $20 million range, with regional and community banks.
He said the large, institutional capital needed for a $60 million urban hotel project like the uptown Moxy still isn't financing those deals, in Charlotte or other urban cores.
"If the bank is not there to cut a $40 million loan, then you really have no option," Birju Patel said. "It’s going to be dependent on when the banks are comfortable loaning on urban hospitality product."
The Moxy isn't the only hotel project in Charlotte on hold. Construction of a 257-room InterContinental Hotel above the Carolina Theatre renovation project on North Tryon Street is paused indefinitely. An executive with the developer behind that project said traditional hotel construction debt has evaporated because of the pandemic.
So is OmShera's 135-room Courtyard by Marriott hotel planned for Dilworth, at East Worthington and Cleveland avenues, as reported by the Charlotte Ledger.
Similar to the Moxy, OmShera was getting everything lined up to break ground on the Dilworth hotel early last year, Anandani told the Charlotte Business Journal. Even with financing and permits in hand, the decision was made in the spring to wait and see where the market was headed as a result of the pandemic.
"The challenging thing is, you don’t know when the business travel is going to pick back up again," Anandani said. He doesn't yet know when the Courtyard could move forward but said several hotel developers are putting on hold, not canceling, projects.
Also on hold: a Homewood Suites in uptown's First Ward, next to LMC's apartment project, according to Axios Charlotte.
STR tracks hotel projects in major metros across the U.S. It's tracking 46 hotels in various stages of planning and development in Charlotte. Two are marked as deferred — the 125-room Hampton Inn & Suites Scaleybark Station and a 100-room Comfort Suites Charlotte.
Kurt Schoenhoff, principal at Verticore Commercial, works with hotel developers on site selection and advisory. He said some clients have access to financing and are looking to lock in sites in areas with high barriers to entry.
He said one uptown hotel is actually expected to begin construction in the third quarter of this year but declined to name the developer or project. In discussions are two boutique hotels in South End.
One of the most visible stalled projects is Mayfair Street Partners' Even Hotel project, near the corner of Stonewall and Caldwell streets in uptown. Site work on that 184-room hotel began in the second half of 2018 but construction has been at a standstill for roughly two years, well before the pandemic. The project had received a $28 million construction loan.
More than a dozen calls and emails to Simon Burgess, managing director of construction and development at Mayfair, asking about the project's status have been unsuccessful since construction came to a halt. Burgess recently told the Triad Business Journal, a sister publication of the CBJ, it was changing plans to build a hotel in that market to an apartment community instead.
That's a phenomenon happening locally, too. Blaze Partners and Argosy Real Estate Partners recently purchased a Homewood Suites hotel in the University area, which has permanently closed. The firms plan to convert the lodging units into apartments.
Future outlook cloudy
Long-term changes to how people work and travel, especially for business, are still unknown.
But economists and others believe the convenience and cost savings that have come from conducting business over Zoom will have post-pandemic ramifications on corporate travel. A Wall Street Journal analysis said business travel could be permanently reduced by 19% to 36%.
Birju Patel said he remains bullish on Charlotte's rebound and resiliency. But of all hotel markets the company operates in, Charlotte has lagged the most.
Unlike cities such as Jacksonville, Florida, or Savannah, Georgia, which have posted strong numbers for BPR, Charlotte still isn't viewed as a destination market. It may never be, he continued.
Add in possibly big changes in business travel and remote work, that might result in long-term muted uptown hotel business, even when the pandemic is behind us.
Vinay Patel said potential changes in how companies approach business travel is something he's thinking about, but a lot remains a wait-and-see game.
"We’ve got a lot of hotels that rely just on that," he said, including SREE's two uptown hotels and one in Ballantyne. The company is finishing a hotel in downtown Cincinnati, an area impacted similarly as uptown.
Birchfield said he's spoken with companies that frequently book rooms at H&B-owned hotels in Ayrsley, saying they've indicated pent-up demand and a desire to return to face-to-face meetings. That gives him hope there will be a rebound.
A return to corporate travel would also help boost lagging room rates. Much of the current activity in Charlotte is from travelers using Expedia and other booking sites to find deals on hotel rooms, Vinay Patel said. When large companies or executives start booking rooms for conventions or other activities, that's when rates should start to rise again, he continued.
Many operators are hoping for a return to group meetings and some convention activity — even if at a smaller scale than pre-Covid-19 — in the coming months. Several hotel owners said they've booked plane tickets and room reservations to attend a hotel conference in Atlanta in May, which will come with temperature checks and masks required for entry.
The Religious Conference Management Association recently held a conference at the uptown Charlotte Convention Center, the first event in the building since the scaled-back RNC in August. Karen Brand, a spokesperson for the Charlotte Regional Visitors Authority, which operates the convention center, said it was reduced in size to be in compliance with current capacity restrictions. The center has also hosted cheer competitions on back-to-back weekends following RCMA.
Between now and the end of the year, there are currently 10 conventions booked for the Charlotte Convention Center that include hotel room blocks, Brand said.
"We are in regular discussions with existing and potential customers about their events and under what circumstances we might be able to host them, recognizing this is a very dynamic environment," she said. "Of course, we are eager for meetings, conventions and events to resume and recognize that public health experts will guide us to how and when that can happen safely. The health of our residents and the health of our region’s economy are inextricably linked, and we are committed to safeguarding both."
A $127 million expansion of the Charlotte Convention Center is expected to be complete later this summer.
Brand also said there have been hundreds of standalone meetings, youth and amateur sporting events, and one- and two-hotel pieces of business throughout the course of a year that don’t use the center but generate demand for area hotels.
Schoenhoff said large meetings remain the big unknown. He said when hotel development returns, demand and interest will likely be in select-service, boutique and extended-stay hotels.
"I don’t foresee any appetite for hotel developers to build full-service hotels," he continued.
Long-term view
Pandemic impacts to the hotel industry have also resulted in millions of workers across the United States furloughed, laid off or working at reduced hours.
There were 141,000 leisure and hospitality workers in the Charlotte MSA as of February 2020, according to the U.S. Bureau of Labor Statistics. That dropped to 81,500 in April. In January 2021, there were about 113,000 working in the sector locally.
As evidenced by the data, pre-pandemic employment levels are still not back to what they were. Birju Patel said BPR had more than 1,000 employees before the pandemic, many of whom were furloughed last year. Today, it has less than 500.
Finding labor has been a challenge, and it's something he sees as a long-term issue.
"There has to be a rethinking of the hospitality industry," he said. "The business model has to change. It's a very labor-driven model, a very expensive model. We’re not finding the labor and it’s too expensive to run these hotels. If you’re not making a profit, you’re not going to see the industry survive too long."
At BPR, the company instated raises for all employees this year and a new minimum wage, although Birju Patel declined to say what rate.
Vinay Patel said SREE has about 900 employees. Instead of mass layoffs, the company cut hours for employees. Even though positions like hotel managers are generally back to full time, he said a lot of hourly employees are still on reduced hours.
Birchfield said H&B has used the pandemic to become more efficient as a company. What was considered break-even six months ago has been brought way down.
There have also been lessons learned. H&B used commercial mortgage-backed securities, or CMBS, debt to finance its hotels, something Birchfield said he didn't think the company will use again in the future. He said it's been very difficult to get any sort of reprieve from those contracts during the pandemic.
"It’s a true statement that good companies weather the storms and come out stronger," Birchfield said. "I think we’ll definitely be one of those companies that has learned a lot and will come out stronger on the other end."