Client Alert 18 Jun. 2020

U.S. Insight: The COVID-19 (Coronavirus) Pandemic Necessitates Change in the Hospitality Industry

The alert is available for download here.

The coronavirus pandemic has disrupted the hospitality industry in a major way. As of April 2020, the majority of hotel rooms in America were vacant and many hotel operators are predicting a slow recovery. Hotels nationwide employ a significant number of Americans while the industry accounts for 5% of U.S. gross domestic product.

One hospitality brand, Marriott International, Inc. (“Marriott”), is an example of a company feeling pressure from the COVID‑19 pandemic, as Marriott will extend furloughs of two-thirds of its corporate staff through October 2, 2020. Steve Weisz, the CEO of Marriott Vacations Worldwide Corporation, spoke about the severity of the situation, asserting that even though governmental pressures to keep people socially distant have hampered business the pandemic itself remains the main driver of economic disruption in the hospitality industry. He remarked, “we actually closed 32 of our 110 resorts, because of government restrictions and regulations. But the remainder stayed open, but with very low occupancies.” A growing number of hotels and hospitality-related services are experiencing similar pressures.

Issues arising from forbearance agreements, which are defined as “agreements to refrain from enforcing a right, obligation, or debt”, have struck the hospitality industry. Significantly, over three-quarters of hotel debt borrowers have requested debt forbearance on their loans. As a result, loan services have become overwhelmed with forbearance requests and are struggling to keep up with the pleas for deferred payments. Foreclosure is therefore becoming a harsh reality for many hotels. Unfortunately, these economic issues appear to be only the tip of the iceberg for the hospitality industry.

To combat some of these issues, Alan J. Fuerstman, founder and CEO of Montage International Hotels and Resorts (“Montage International”), a luxury hospitality management company, is focusing his efforts on the long road to recovery and the future of the industry by re-establishing consumer confidence. Fuerstman states that “consumer confidence is our biggest challenge right now as an industry.” He believes this will be crucial to ensuring the health and safety of hotel customers without “compromising the experience they came . . . for in the first place.” Montage International, however, is not alone in its thinking. For example, Hilton Hotels, which recently laid off roughly 25% of its corporate staff, partnered with Lysol in hopes of increasing its guests’ safety as well as restoring consumer confidence in the rooms and facilities. Additionally, Marriott founded a “cleanliness council,” which is also aimed at restoring customer confidence.

Similar to a multitude of other industries disrupted by COVID‑19, the pandemic has brought the hospitality industry to a screeching halt. Therefore, professionals equipped to restructure businesses of this sort will be essential to successfully navigating companies through the Chapter 11 process.

Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.