Is The Hotel Industry Finished? | The STRR Podcast #57 | Tim Hubbard

Well, today I have some not so good news for everyone out there. Maybe you've heard about it, maybe you've seen some of the facts, but I'll be the one to break it to you. Let's talk about the hotel industry this week. Welcome to Short Term Rental Riches. Quick actionable ideas to help you along your real estate investment journey, but with a specific focus on short term rentals. Welcome back to the Short Term Rental Riches podcast. Here we are another week and another topic related to short term rentals, but in a roundabout way. And this week I gotta say, this topic is a bit of a downer. It's a little scary for a lot of people out there. These are tough, tough times. This week we're talking about the hotel industry. I've got some facts for you from the American Hotel and Lodging association as well as a couple other sources. We're going to talk about the impact that Covid has had and that is still having and what the future might look like. I'll bring up a few hotels that are already closed, hotels that were famous and they've been around for a century that maybe you've heard about. We'll discuss what happens if these numbers are right and this wave of closures and troubles for the hotel industry continues, what it means for us as a short term rental operator and how it could be really good for us almost in an unfair way. So let's just dig in real quickly. I've got some stats here from the American Hotel and Lodging association and these are recent stats. They did a recent survey which came back and said 2/3 of hotels will not be able to withstand another six months of the current occupancy levels that they're having. That means they will go out of business like many already have. Now, a lot of the ones that have gone out of business already are in the denser urban areas that just been really highly regulated and completely locked down. So urban has definitely been hit the hardest. You know, there are some hotels potentially that have done better out in remote areas that are more spacious. But in general, this has been a year like no other for the travel industry and including our short term rentals, depending on where we have them. The AHLA also said 68% of hotels in the USA have half their pre pandemic staff working full time. Unemployment trickles down, right? If someone's not making money from their job, well then they're not spending money in their restaurants and they're not spending money on groceries and other items and entertainment. So that trickles down it has a really big impact on the economy. Another part of the study said that without more action from Congress, so without more financial support, that half of US hotels could face foreclosure in the next six months. I was watching someone recently that explained what's happening in terms of an earthquake and a tsunami. And I think that's a really good analogy. Basically said, you know, when an earthquake happens, it takes out a lot of stuff, or it can take out a lot of stuff. It can crumble buildings and do all that. But if you're next to the coast, a lot of. Sometimes the big damage comes from the tsunami and that takes time, right? It builds up and it builds up and then boom, it comes in and it just washes everything away. So sadly, that's kind of what is happening. I mean, as, as we continue to have restrictions with COVID and hotels continue to have really low occupancy levels, that tsunami is coming for a lot of them, unfortunately. So let's talk about a couple more stats here. Some big hotel names that maybe you've heard of. Hilton, for example, and their third quarter losses, they just reported a net loss of $81 million just in the third quarter. We have Hyatt just reported losses of $161 million just in the third quarter. Now, MGM Resorts, you might be familiar with some of their hotels in Las Vegas. Get this, they lost $535 million just in the third quarter. Wow, that is. Oh, man, I feel bad for them, I gotta say. I do, I really do. I feel bad for the hotel industry because us as short term rental operators, we've really had an unfair advantage in all of this. To capture a lot of the people that may have been going to hotels that were shut down or locked up. They've been coming to short term rentals. So we haven't done that bad. And I'll go into that a little bit more in the end. I just. I want to go over a couple more stats with the hotel industry here and also a few other major hotels that are already closed, that have closed, they are gone with no plans of coming back, sadly. One is the Lux Rodeo in Beverly Hills. In la, they are closed, they are gone. They were a very famous hotel next to all the most famous outlets in Beverly Hills. They're gone. The Martinique, I don't know if I pronounced that right, actually. But in New York City, they were designated a landmark in 1998. One of the most famous hotels in New York, gone out of the picture, not here anymore. Roosevelt Hotel in Manhattan it's been around for over 100 years. It's gone, it's out of business. These are really big hotels that make hundreds of millions of dollars or that have values around those figures and they're just, they're gone. I think that this is probably the tip of the iceberg. Unless things change quickly, unless regulations loosen up or the other thing is the government can come back and provide financing, but that financing has to be paid back. And most experts, including CBRE and the ALHA and a lot of these places that do research on the industry aren't expecting a recovery for, for a couple years, at least 20, 23. So we got a long way to go. Hopefully they can hang tight. But what, what happens if these hotels continue to close down? Well, first of all, we lose a lot of jobs, sadly. But we also have less supply in the market. We have less places for people that still want to travel and that are still able to travel. There's less places for them to stay. And I believe in, at least from viewing my own properties, my own occupancies, that these people are staying in short term rentals. And that's why we've seen some of our daily rates going up versus this time last year. As sad as it is for the hotel industry, it's actually kind of good for short term rentals. And we really have had an unfair advantage for a city to come in and regulate, you know, 2000 individual short term rentals. That's much more difficult than it is for them to regulate one big massive famous hotel that has common areas and elevators and a lot of places that are difficult in these current times with COVID So we really lucked out on this one. Hopefully travel bounces back, hopefully we come out with these vaccines. But things are not looking good for the hotel industry. And as I mentioned, it's kind of like that wave, that wave is building. And some of these things are going to take time, right? It's going to take a year or more in a lot of cases for the loans to become that delinquent that they actually go into foreclosures. So this is trickling up, I guess you could say. We've got the investors that own these hotels, they're getting hit hard, but it's going to take a while for that to happen. So going forward, I think there's going to be less supply in the hotel industry that's going to put more demand on short term rentals. This is my theory, this is kind of what I'm seeing already. And this is what I expect to happen. But along with that, you know, we've talked about in prior episodes that people just enjoy staying in short term rentals. They're different than hotels. They have kitchens, they have private entrances, they have more space, they can bring their family and stay in one space versus staying in a hotel. So another thing that this trend with the hotel closures and regulations has had on the economy is that a lot of these people that were going to stay in hotels and couldn't have stayed in short term rentals for the first time. So they've just experienced what it's like to stay in a short term rental. And a lot of them, as we've seen the short term rental industry explode, it's very likely they figured out, wow, I actually like these short term rentals more than I liked the hotels. And hotels know that too. That's why newer hotels are being built a little more like short term rentals, a little more unique. So I feel bad for all those in the hotel industry who would have saw this coming. This is the worst time for the travel industry industry or for the hotel industry, I should say in particular, in our lifetimes, it's never been this bad and it would have been really hard to see that coming. So I feel really bad for them. On the flip side, for us short term rental investors, we've got more demand coming our way. We've got more people discovering short term rentals because they can't stay in hotels. So hang in there. Hopefully your guys at short term rentals are in one of these areas that are really benefiting and that aren't in a super, super dense area. But keep that in mind. I think the wave is coming. I don't, I don't know how to spruce that up and make it sound better. So let's just hang tight and until next time, have a wonderful day. Want to get on the fast track to financial freedom through short term rentals? Well, it all starts with the properties you acquire, but you want to make sure that you acquire the right properties. I want to give you my ebook that will show you how to do just that. There is no charge. It's my gift to you for being one of our subscribers. Just go to restmethods. Com, That's Rest Methods. Com.