The New York Times: Once a Hotel Suite, Now an Office Space
As the hospitality industry grapples with a severe downturn, owners are turning hotels into offices, schools, emergency housing, wedding halls or homeless shelters.
By C. J. Hughes
October 6, 2020
Like many hotels pummeled by the pandemic, the InterContinental Times Square is trying to hang on.
After tourists stopped arriving this spring, the 607-room property transformed into housing for doctors and nurses treating coronavirus patients. When they checked out, the high-rise began offering blocks of rooms as office space. And with its reopening this month, the InterContinental will again play office landlord, this time on a suite-by-suite basis.
“We’re trying to be creative,” said Gul Turkmenoglu, the general manager, “and hope our ideas take off.”
Across the country, as the hospitality industry grapples with a severe downturn, hotels have been trying to reinvent themselves — as schools, emergency housing, wedding halls or homeless shelters — even as the new uses may come up short on revenue.
There are signs of financial distress. In New York, 44 hotel loans backed by bonds totaling $1.2 billion are delinquent, according to September data from Trepp, an analytics firm. In second place was Houston, with 39 delinquent loans at $682 million, followed by Chicago with 29 at $990 million.
Though a foreclosure would not necessarily cause a hotel to close, many analysts do not expect the industry to fully recover till 2023.
“Generally speaking, every hotel in America has lost 20 to 35 percent of its value in the last six months,” said Keith Thompson, a principal of the hospitality group at the brokerage firm Avison Young, which is starting to list distressed hotels at steep discounts.
Government efforts to house people in need have picked up some slack. New York, for instance, leased 11,000 rooms in hotels from April to July for medical workers who did not want to infect their families, as well as Covid-19 patients who could not isolate properly at home. One was a Hilton Garden Inn on West 37th Street, where three patients died in April after being discharged from hospitals.
This spring, New York also leased 63 of the city’s 700 hotels to house homeless residents, who are vulnerable to the coronavirus in open-layout shelters. The city pays $120 per room per night to those hotels, which received 9,500 people during the pandemic, most of whom are still there, a spokeswoman for the Department of Homeless Services said.
Included are outposts of chains like DoubleTree and SpringHill Suites, but also Kixby, a 195-room boutique property on West 35th Street with a “mixology” bar in the lobby.
But the plan’s rollout hasn’t always been smooth. Some of the 300 men put up in the Lucerne, an Upper West Side hotel, took drugs and were rowdy, according to neighborhood residents. The city later relocated the group.
Miami took a similar approach to coronavirus containment. Five hotels were designated as housing for doctors, the homeless and Covid-19 patients, for a total of more than 2,100 people from July to September, officials said.
State and county funds cover the rooms and meals, said Frank Rollason, the director of emergency management for Miami-Dade County. “We had to evict some people. A meth lab was set up in one room,” Mr. Rollason said. “But we have also saved lives by stopping a pyramid of people from being infected.”
Whether new residents wind up as troublemakers or not, hotels seem eager for a lifeline. About 100 have emailed Mr. Rollason about participating in the program, he said. Their interest seems understandable, as the number of tourists is sharply down.
But the state money can be a pittance compared with what came before. The Doral Inn and Suites, a 112-room property catering to business and leisure travelers near Miami’s airport, collects $35 a night for units that once traded at $250. A week ago, 73 rooms were taken.
Alex Nahabetian, the manager of the family-owned hotel, said he had been planning to renovate the property, which was built in the 1980s. But then the pandemic hit, and his lender pulled financing because hotels were at risk. That lender would also grant Mr. Nahabetian only a three-month forbearance on his mortgage payments, a grace period that expired in June.
“The program has been a major lifesaver,” he said. “Otherwise, we would be permanently closed.”
Hotels not selected for government relief are often converting rooms into offices, at a time when office buildings remain closed.
At London West Hollywood at Beverly Hills, a 226-unit property in West Hollywood, Calif., beds were removed to create work spaces more like boardrooms. About five have been rented each month since June for $5,000, a spokeswoman said.
But most properties seem to be betting that workers simply need a desk, and because most rooms already have one, the hotel doesn’t have to splurge on a makeover.
Employees of the Hotel Figueroa, a renovated Spanish Colonial landmark in downtown Los Angeles, generally reposition furniture only at a client’s request. The 268-room hotel, which housed medical workers in the pandemic, has leased 200 offices since June for $25,000, a spokeswoman said.
But office space is usually much cheaper than standard rooms. At the InterContinental Times Square, offices, which are leased by the day, are about 30 percent less than overnight stays, and rates for those overnight rooms are down more than half since last year, Ms. Turkmenoglu said.
Hotels are rethinking common areas, too. Last month, five families rented a conference room at a Courtyard by Marriott in suburban Elmhurst, Ill., so their first-grade students could comfortably engage in remote learning. Gym class was in the hotel’s pool.
Use of the room would normally be $600 a week; the families paid $350. That’s not insignificant when occupancy is a third of its normal rate, said Tania Gawel, the director of sales at the 140-room property.
“It’s been very slow,” Ms. Gawel said, “so it’s all about thinking outside of the box.”
Other hotels, like the Great Wolf Lodge resort in the Pocono Mountains in Pennsylvania, have set up remote-learning facilities to lure vacationers. And ballrooms that once hosted business conventions are now marketed for “micro-weddings” that are substitutes for larger parties that were canceled.
The backdrop to the survival efforts is gloomy. Nationwide, about three dozen hotels had closed for good as of last month, including in Austin, Texas; Denver; and Washington, according to STR, a hospitality analytics firm, though that number is expected to skyrocket.
“For some properties, just keeping the lights on could cost $1 million a month,” said Jeffrey Davis, a broker with the commercial real estate firm JLL and co-head of its hospitality group. He added that debt service could add $5 million.
By late September, 188 of 700 hotels in New York had closed, and their status is unknown, according to the Hotel Association of New York City. Closures have included Omni Berkshire Place, Hilton Times Square and two Courtyard by Marriott hotels. Some may be purposefully staying dark to save on labor costs until the market improves, brokers said. But taxes are gobbling reserves in the meantime.
Most of San Francisco’s 215 hotels are temporarily closed, with some not planning to reopen until next year, said Kevin Carroll, the chief executive of the Hotel Council of San Francisco, a trade group. As in other cities, hotels there have filled empty rooms with essential workers, people needing to quarantine and those looking for alternatives to home offices. Evacuees from the region’s devastating fires have also taken up residence, Mr. Carroll said.
But turning over hotels to other uses, especially as homeless shelters, can hurt properties in the short run, Mr. Davis said. “You may be getting a good bang for your buck for your rooms, but the wear and tear in your hotel is something to be reckoned with.”
Some of the rebranding could become permanent. Already, Mr. Davis has seen buyers interested in converting struggling hotels to college dormitories or “micro-apartments.”
“That is something that’s totally new, that we haven’t seen in previous downturns,” Mr. Davis said. “And it’s probably one of the most interesting.”