LEXINGTON, Ky. – The hotel industry may have been hit hardest by the COVID-19 pandemic, and struggling or closed hotels have a far-reaching economic effect on a community.

A record one-fourth of hotels in America being behind on their mortgage payments has forced the industry to ask Congress for a lifeline to avoid a potential collapse.

News reports have largely focused on the retail and home mortgage crises, but hotels nationwide and across Kentucky are linchpins of any city, a nuclei for activity, and major job and tax generators.

Industry website Hotel Management references a new national report compiled by analytics company Trepp that shows the hotel industry is facing a historic wave of foreclosures as the COVID-19 pandemic continues to devastate small-business hotel owners and its workforce.

The Kentucky Travel Industry Association (KTIA) is the trade group that represents businesses in the travel and tourism industry, including hotels. KTIA President and CEO Hank Phillips said the state’s hotels started suffering financially in February. 

“Hotels in Kentucky and nationally have, to a large extent, been devastated by virtue of the drop off and in travel,” Phillips said. “They never had to close, like restaurants, bars, and other places, although hotels that have restaurants and bars, they had to close those and adhere to the same rules as a free-standing restaurant. They have been feeling this pain just as the overall industry.”

The hotel segment is facing a historic number of delinquencies and is the most heavily hit sector of the commercial mortgage-backed securities (CMBS) market, according to the report. Nearly 4,000 hotel industry leaders sent an urgent letter to Congress asking for immediate action to help hotels avoid foreclosure and the loss of tens of thousands of jobs.

“Hotels were among the first to feel the pain, among those most deeply affected and will take the longest to rebound,” Phillips said. “Not just hotels, but the travel and tourism industry overall.”

The Trepp analysis lists the 20 metro markets with the biggest hotel loan delinquency totals by dollars and by percentages. Expensive places such as New York City have much larger dollar totals, but percentages are very high in places such as Minneapolis and Rochester.

“There’s a lot of hotels out there that have occupancy, generally speaking, in the 40 percent range, some better and some not approaching 40 percent,” Phillips. “Normal right now would be 60 or 70 percent of rooms occupied.”

Hotel Management reports the number of hotels more than a month behind on their mortgage payments is more than 50 percent higher than the number of troubled hotels during the Great Recession. While many hotels are or are owned by large corporations, 61 percent of hotels in the U.S. are small businesses.

“One thing to understand about most hotels is you'll see a well-known brand, like a Hilton, but the hotel itself, more often than not, is a small business owned by an individual or a small company,” Phillips said. “And it has that well-known name brand, but that actual business entity is a small business. And some folks don't always understand that and as far as the CARES Act, they have benefited from the Payroll Protection Plan. But that benefit comes and then it's gone, and the crisis continues.”

Four hotel associations sent Congress a letter outlining the depth of the issue. 

“The human toll on our employees and our workforce is devastating, with less than half currently employed,” according to the letter. “The economic impact on our industry is equally as dramatic, estimated to be nine times greater than the Sept. 11 terrorist attacks.”

Hotel demand may not recover until 2023, according to the report. 

As of July 30, more than half of all hotel rooms were empty across the country.

“Things are better than they were because, during the worst of this situation, a hotel’s average occupancy was in the 20 percent or in the teens,” Phillips said. “There has been some overall improvement, but nowhere near anything remotely approaching pre-COVID normal.”

There are 33,561 hotels in America and they are on track to lose half of their 2020 income, and about 4.8 million hotel workers have lost their jobs since February, according to the report.

Larger chains require special help because they did not benefit from Paycheck Protection Program loans because the hotels with commercial mortgage-backed securities, called CMBS, did not qualify for forbearance because their loans are complicated. Nearly a third of the $300 billion in loans owed by hotels are CMBS loans, according to the report.

“One of the things we worked very hard on is to help them to get some degree of relief with respect to their commercial property financing,” Phillips said. “But that's an area of struggle that is not just revenue and keeping staff on board, it's meeting their mortgage payments. I'm not saying there are none in Kentucky that have had to literally go out of business – I'm not personally aware of any – some have suspended operations and reopened as things have begun to get somewhat better. This is a rolling crisis, as long as the business stays depressed, and there's not the normal or anything approaching normal flow of revenue, it's just like any other small business or family that has obligations and can't meet them. There are more difficult things to come.”

Hotels feeling the most financial strain are those that depend on meetings, conferences, and events, large and small.

“Large obviously being, for example, the Kentucky Derby,” Phillips said. “I talked to a large hotel in Louisville last week, and during Derby week, their occupancy rate was in the teens. And that's just mind-blowing. That's a dramatic example of the difficulties. But larger city hotels, especially in some of the mid-sized cities, they benefit a great deal from meetings and conferences that are either right there in the hotel, or at a convention center with the hotel benefiting from business. And those are among the ones that are still encountering the greatest difficulties. They are all feeling the effect. Whether it's Derby or UK football season coming up any of those that drive business traditionally to hotels where there's going to be either no or limited spectators, those are the hotels that have and are continuing to really take it on the chin.”

U.S. hotels supported one in 25 American jobs before the pandemic. Hotels are huge customers for the food, alcohol, utilities, internet services, and office supplies industries.

Hotels also pay property taxes. Industry leaders warned the White House in March that up to half of the hotels in the country could close after 2020, thus adversely affecting a tax base created by hotel owners that were already planning to ask for lower property taxes because property values have decreased in the past year.

Aside from property taxes, hotels generate tourism taxes, room or “bed” taxes, and state and local sales taxes. Hotel occupancy is an indication of the tourism and convention industries.

Oxford Economics estimated that “due to the sharp drop in travel demand, hotel operations and room occupancy, state and local tax revenues will drop $16.8 billion in 2020.”

Without spectators allowed in the stands to watch the 146th Kentucky Derby, hotel occupancy in Louisville was down significantly from the past years. In addition to a few guests, hotels in Louisville hosted Derby specials and parties. The host hotel of the Kentucky Derby, The Galt House, hosted viewing parties to showcase new features of the accommodation for mostly local guests, according to a story by Spectrum News 1 KY reporter Ashleigh Mills. 

The American Hotel & Lodging Association (AHLA) reports about two-thirds of hotels are still below capacity by 50 percent or more. The general manager of The Galt House, Patrick Gregory said, “occupancy has been very difficult this year. It's been a very slow year in hospitality.”

Stacey Yates, vice president of marketing and communications for Louisville Tourism, said the shuttering of hotels, restaurants, and bars from COVID-19 early on caused about half of Greater Louisville’s 60,000 tourism jobs to be cut. 

Even in the midst of what is likely the worst period in the history of the hotel industry, there are some positives, Phillips said. 

“Hotels along the interstates are doing better,” he said. “If we look at the whole picture of hotels in Kentucky, that's one of the brighter spots, those that can pick up business. Just transient business flowing up and down the interstate corridors. That's one area that's relatively positive. Another one is hotels that can take advantage of people enjoying outdoor activities and recreation. Such as around Lake Cumberland and other major lakes throughout the state. Those are doing better on average.”

Tourism in Kentucky generated $8 billion in 2019.

“I haven't seen any projections for 2020,” Phillips said. “I know that as far as how the year might end, I can just generally say 2020 will not be anywhere approaching that kind of number. I’m afraid to estimate what the number will be. Let's just say it's gonna be a completely different kind of number.”

Convention and visitors bureaus (CVBs) have assisted their tourism partners in the midst of the pandemic. Oldham County Tourism and Conventions partnered with Holiday Inn Express & Suites to form private office room rentals where business people not accustomed to working from home or may need more privacy than home allows may rent a private office (hotel room) between 8 a.m.-6 p.m. each day. The rooms can be rented by the day or by the week.

Corbin Tourism and London-Laurel County Tourist Commission is advertising its hotels through social media to travelling nurses and visiting physicians, as well as to those who need quiet work space.