The Hospitality Market Outlook: Challenges & Opportunities | The Stoler Report-NY's Business Report

The Hospitality Market Outlook: Challenges & Opportunities | The Stoler Report-NY's Business Report

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♪ [Theme Music] ♪ ♪ [Theme Music] ♪ >>> Michael: One industry which has been affected most hard is the hospitality industry, the hotels and the restaurant business. So today I've assembled a group of individuals who are happy to discuss the outlook, the challenges and the opportunities in hospitality and the restaurant business. My guests today include Brad Honigfeld, the founder and co-chairman, a chairman and co-CEO of the Briad Organization. Brennan Keating, our lender, who is the administrative vice-president specialty financing for M&T bank. Also, we have Kurt Kiess, who is a partner and a member of the executive committee of the firm of Mark's Paneth LLP. And last but not least, Mark Stebbins, who's the chairman and CEO of Procon and the manager of XSS Hotels. So, Mr. Keating, you

must be a little busy over the last year. How do you see the future? Where do you see the opportunities today? >>> Brennan: Well, I mean, yeah, to say we've been busy is an understatement. But it's, it's not the good kind of busy. It's, it's been very challenging and it's hard to see, you know, the, the strain and stress that's been on the hotel portfolio and, and, and with the clients that we have. So, you know, you know, anytime you get anyone from M&T on your group on, on one of these meetings, you know, you're going to hear the same story about we're relationship lenders, and we've kind of lent to people through the cycles. So, this cycle has been much longer and deeper than we've seen in the past. And, you know, the opportunities I see are really just getting through this. So, I'm looking at a lot of the things that we're doing

for our clients through this period, really trying to bridge ourselves to the cashflow, which we hopefully will see, you know, coming to return end of this year and, you know, or, or by 2022. So, most of my time is spent on the existing portfolio. That's really where I see the opportunities right now. >>> Michael: Mark, a couple of months ago, I think you, you purchased a hotel from a bank's portfolio. And you want to change the, the nature of the hotel. I think it had 420 rooms. You planning to drop it down to 220. As a hotel developer,

operator and a manager, where do you see the opportunities and talk about that, that transaction that you bought up in New England. >>> Mark: First of all, I agree with Brennan that M&T is a relationship bank. We have a lot of loans with M&T at their Boston office, and they've been very, very good to work with.

They are in the process of buying People's Bank and People's Bank was the one who had the loan on the property we bought in Franklin, Massachusetts. It's, it's a big old building that looks like a castle. It's well past its prime. It's too big. It's got about 80,000 square feet of meeting space and we're going to take it and repurpose it, turn a third of it into senior housing, which is another business we're in and take the rest of it, so a little over 200 rooms, and redecorate them and, and bring them up to date as well as the lobby and the conference center, so people feel like they're in a modern facility. We bought the paper, we didn't buy the building. And then we foreclosed on the building. There's been a lot of money raised in the last six months for people to go out for groups like ours to go out and buy distressed property. But

frankly, distressed property because of a lot of the banks and the PPP money, hasn't been available. There haven't been many distressed properties available. We bought one in Miami and we got the one up in Franklin and we're just happy to have those. What I think we see as the opportunity is that it is

going to take a lot of our competition out of the market. A lot of hotel developers in the -- in the medium term are going to be devastated and out of the market. We had a very strong capital base and have been relatively conservative. And we

think the next few years are going to be -- we're primarily based in, in the Boston market. And we, we think it's going to be a great market going forward. >>> Michael: Kurt, you know, I think you were quoted once in an article, a landlord is often referred to as the silent partner in a business. Some of your landlords today especially for your tenants and clients who are in the, in the restaurant business that's totally true.

How do you see the, are there opportunities for people in the restaurant business? Because we're going to talk to Brad about it because he's also heavily into the hospitality market. >>> Kurt: Thanks Michael, for having me. Yeah. I wrote that back probably last May and I saw it as an opportunity for people in restaurants to renegotiate and change their leases if they could. And for a lot of my clients that's happened.

Landlords have been accommodating to restaurants. They understand the PPP money. Everybody understands that now pretty well. PPP 2 is just coming out. And for most of my clients, most of these restaurants, they've done a good job with their landlords and landlords have understand the, obviously the difficulties with operating, especially in New York City. In suburbs, it's been a little easier with occupancy

at 50% or better sometimes. But I also really do believe there's a big difference between a small building and a big building. In a small building, that restaurant was paying the mortgage. In the big building, that restaurant might've been extra money, you know, short, it might not have made the difference between making the mortgage payment or not, but it depends where your landlord is. And a lot of restaurants did and have renegotiated. And there were a lot of people looking

actually to open restaurants again in new spaces and new deals with new landlords. So -- >>> Michael: Brad, as I was saying, you, you you've been for your entire career have been involved with the restaurant business. Okay? So, of the restaurants, which ones are doing well in your portfolio and which ones do you believe have the best opportunities for growth in the future -- when, now that we have a vaccine? >>> Brad: Well, we, you know, it's, it's obviously been a complete challenge, you know, from many standpoints. We're, you know, 108 Wendy's, which have performed extremely well during the pandemic. And I think when lenders, such as M&T, Bank of America, look at the industry, you know, that is going to be an industry of QSR that I think a number of banks are going to really back because provided that you've had a drive-through, it was an essential business and our margins have improved as a result of the dining rooms primarily being closed and I don't see them opening for some period of time. And when they do, I think there's going to be a new mouse trap because we're probably doing 20 to 25% of our business now through Uber Eats, DoorDash and all the delivery services. So, you know, it's going to be -- hopefully that

will continue to grow. Wendy's also got into breakfast. So, I'm very bullish and on the Wendy's business and we had a great January of eleven and a half percent, February was really tough. And it's, you know, March show we'll, we'll see where things are at. So, that's for sure been a bright spot. I'll tell you -- while I was in the Friday's business for 27 years, and I'm no longer in that business, a gentleman that came along and actually was financed by M&T Bank and he's got a casual dining concept that primarily serves the Friday's type of menu, but really with a pizza and sushi. And he is doing terrific and sushi has one of the largest takeout items in casual dining. So, once you kind of think that things are just dead and the restaurant space, I'm, he's a tenant of mine in Clifton, New Jersey in the shopping center I own, we're converting a Zinburger that we had, that does not work on a $20 check average at, you know, 25 or 30% occupancy, but, and does burgers don't carry well. So, we're converting our Bridgewater

store, we'll partner with him. But he's got a good mousetrap. So, I believe that the restaurant business will continue to be reinvented. I do think that the bias will be towards QSR, you know, lending and -- Chipotle -- lanes and Starbucks, that's kind of the, really what has come out of the pandemic.

>>> Michael: What about the, the topic of re-purposing of facilities? I mean, there's discussion in the New York market and Brennan, your majority of your portfolios in New York are thinking of taking some hotel rooms and converting them to offices and to residential. >>> Brennan: I mean for the short term, a number of our clients had converted to, you know, renting rooms out to, to shelters. So, if your hotel was located in an area that was, you know, entirely dependent on business travel, you know, for the most part we were, you know, we've been supportive of that, because you know, business travel has not come back. The travel that is in place now is leisure. So, if you're not in a leisure market, owners are going to have to do what they can to survive right now. That being said, there are going to be some properties that may never come back as hotels. And having the

alternatives to move to low-income housing or have a component of that in the hotel will probably be the outcome for some of the, of these, these hotel properties. So. You know, and just into Mark's point that he made at the beginning, you know, a lot of the distress that's out there right now were properties that were kind of in distress going into COVID. The ones that were kind of strong going into COVID seemed to be surviving. So, you know, with the relief that the banks and

through PPP have been able to provide. So, I think those will probably be some of the ones that you see, you know, converting to alternative uses. >>> Michael: Kurt? >>> Kurt: Well, I do a few hotels here in New York City. I have one client who lost a major operator in the building. That building now is vacant. So, it's Downtown New York. The conversion to residential seems to be a huge undertaking and not sure if it's worth the cost benefit at this stage. So, I

think that it needs to be seen as what comes back and what does not come back. I did hear, and I don't know exactly where it is, in also in New York City, that one restaurant operator in -- located in a hotel took over the first and second floor and made them private dining rooms in these empty hotel rooms. So, people could feel separated, which I thought was a fascinating idea to increase your occupancy density and things like that. So, I don't have a huge hotel practice. But I thought that those were two interesting things that I saw. >>> Michael: Okay. You know, one of the big topics over the last

15 years, but really over the last two years, has been Airbnb in the hospitality industry. Where do, what are the thoughts of my, really my hoteliers, Brad and Mark, with regards to Airbnb in the future and its effect on the hospitality business in general? >>> Brad: I mean, from my perspective, when you look at Airbnb, it being an 85 billion to a hundred billion dollar market cap and Marriott, obviously we unfortunately just lost our CEO, who was a terrific gentleman, Arne Sorenson. And you know, Tony Capilano has a big job ahead of him with, along with Stephanie and Leanne Brown. And the leaders of Marriott and, you know, I think that they will, you know, engage with our, you know, the franchisees and owners. And I think that we may need to be more active. You know - When you think about

it, you know, Airbnb really doesn't have any hard assets. Yet their market cap is where it is. Marriott has $50 billion market cap and has a tremendous amount of hard assets. So, I

don't know. I mean, I would not be surprised if I was Airbnb to say, you know, where could I, you know, use my balance sheet to go out and buy some hard assets? So, you know, just as there are some banking mergers and acquisitions as, as M&T is making, you may see that in the hotel business in some form of way, you know, coming soon. So, you know, to BD, but, you know, bullish on, on hotels and hotels that are in the 100 to 150, you know, rooms and also hotels that have rooftops as a, as a point of differentiation in the, in specific markets. >>> Michael: Before I asked Mark to answer the question, I know that hotels, Airbnb board, I believe in December of last year, a certain last year, hotels now. So, they went into the reservation system business in a different world, leaving their traditional market of from the individual's home or room.

Mark? >>> Mark: So, Airbnb is not a profitable venture at this point. And, and frankly, they're, they're competing unfairly. Us hoteliers have to have handicap accessibility and all sorts of rules, laws that go along with us. When you rent an apartment out, it doesn't come with that with, with those rules and regulations and oversight. So, there's a lot of rezoning, rethinking that has to go on. You know, friends of mine have lived in apartments, very expensive apartments, next to Airbnb apartments. And there's, there's no oversight in that.

You can have a party of 50, you know, in a four bedroom apartment and, and bother all the, the, the, the other tenants in the apartment complex. So, I think Airbnb has a long way to go. I think it makes a lot of sense in, in far flung places, but I don't think it makes sense in the urban areas where there are hotels and where they're taking apartments and doing short-term rentals. A lot of New York and, and Boston and, and numerous other municipalities have started making rules and regulations about this. And the hard part is going to be enforcing those rules and regulations. But I think the day will come. I think there is a place for an Airbnb. But I think

the more it spreads its wings the more it's going to be regulated. >>> Michael: You know, with, with regard to certain hotels, -- I mean, Brad and Mark are building certain hotels today. Have -- due to the pandemic, have you changed the way that you were planning or to develop the hotel? I mean, for example, I know that Brennan had a construction loan, which they no longer had as the permanent, as the JFK, the TWA at the JFK airport, where a significant portion of the revenues were predicated on weddings, bar mitzvahs and other major events. I don't see people returning that fast to these big events. Brad? >>> Brad: Actually, we've had one pretty much that M&T financed graciously for us in Bridgewater, New Jersey. It's an

AC by Marriott. I think the second one in the States, 150 rooms. We had opened up just in March. Cut the ribbon and COVID hit. I think the first month we did 50%. And it's a beautiful property. It has a restaurant had a Zinburger next to it adjacent. It's going to be now Tommy's Tavern+Tap and we have a rooftop that's been vacant. So, we took this year to really,

you know, the guts of the building were there, but I wasn't really happy with it. I come out of the Marriott -- been with Marriott for 41 years in some form of shape. And so we really spent probably another million dollars to really find the right designer that's out of Los Angeles. And John Sophia, who came in and redid this with us and it's just looks outstanding. I mean, there's still some details that I want

to continue to refine and get done. And then in San Diego, we're under construction with an AC by Marriott and the gas lamp only took me eight years to get the approvals. And I had to own the building for some period of time, but that's going to have a, a small club on the bottom and it's going to have a rooftop with a bar and a pool and a sort of a club up there. So, I think these venues in certain areas give a point of differentiation for business and for us to be able to sell, especially around Teterboro airport, where there are a lot of hotels and the --lands and things like that.

>>> Michael: Mark? >>> Mark: So, Michael, I don't agree that bar mitzvahs, weddings, big gatherings are going away. Frankly, in one of our hotels, we have 30 weddings booked for this year. And we've, last year, we had 25 weddings booked in the same hotel. Now, albeit they were smaller because the government, the governors have, have regulated how many people. But I honestly think we're going to see a very quick comeback in, in, in weddings, bar mitzvahs, et cetera. The big issue is going to be the big

business convention. And those hotels, I think will take a little longer to come back, but I'm on a president of one of the franchise advisory councils for Marriott and we just had a discussion and we're going to have, this fall, gonna have a big meeting in, and, and we're gonna lead the way. I think those will come back. We're social animals. People need to get together. I see a lot of, in our area, the Boston area, a lot of the CEOs saying, you know what? This, this work from home thing is cool, but it ain't going to last, you're going to have to come back to work. And I think the same thing with the conventions, you know? We can do these Zoom type things like we're doing right now with you, but that ain't going to last the minute, the minute, the herd immunity stock -- comes about, we're going to see people getting together in mass again.

>>> Michael: With regard to the topic of ghost kitchens, you're seeing kitchens offsite being delivered. And as Brad said earlier about UberEATS. So, what's your thought. Kurt? Any thoughts about the ghost kitchens? >>> Kurt: Yeah. It's, it's been more coming around more. I have

a few people doing things like that. I think with the takeout world now, everything's take out that these ghost kitchens are becoming more popular. I've had clients in the past, they've done strictly take out also and that didn't work. It's working very well right now. And these ghost kitchens are popping up.

They're not big tenants I don't think. I think they're all short term leases and not a lot of security behind them, but it depends about the product. And in today's world, younger people are very much foodies. My, like my daughters are always taking photos of food and tracking food and if some pop-up shows up and they're the hot trend, people order and Uber Eats and all this goes on and it gets from this ghost kitchen to your house and it, it seems to work. It fills a little space there.

>>> Michael: What about the limited service hotels? They've been a number of articles and discussions that the limited service hotels and the, the suite hotels are really doing better today. Is that a reality or, and what about the future on that? Mark or Brad? >>> Brad: I'm very encouraged, I think last weekend, three of our hotels had sellouts. You know, we are seeing in certain markets that we have a number of weddings that have booked for June, July, and August. I'm cautiously optimistic. That the

wildcard here is the business travel, right? I think, you know, with 25 million people being vaccinated, I am a huge proponent walking around my own office, I am on a, on a warpath to get my office open. I do believe, I think CEOs have to lead and we as business leaders, you know, it's a very tricky thing whether we can mandate. And I think that for younger people, it's impossible for them to learn by Zoom. And we were

finding a lot of people retiring earlier because you know the pandemic and if we don't train younger people now, we're just going to be behind the eight ball. >>> Michael: Mark? >>> Mark: What you were calling suite hotels, we call extended stay hotels. And, and the extended stay hotels have done so much better during the pandemic than all the other hotels. And that's because the outcome with kitchens. And, you know, as we know, a lot of restaurants weren't open. So, when people were traveling, they would go to the grocery store and bring in their own food and cook them right in the hotel versus searching high and low for, for restaurants. The days

back to the full service versus the limited service, select service hotels, I think the days of the big, big hotels with room service and that being cool are, are gone. You know, it just costs too much money to, to service to man the room service. Our issue really is in the hospitality, which includes restaurant and, and, and a hotel, is the cost of labor. And so we have to watch that very closely and that those limited service hotels do a lot better job of limiting labor.

>>> Michael: To discuss everything in the hospitality and the restaurant business would take an hour or two hours. But unfortunately, our time is up and I'd like to thank Brad, Brennan, Kurt and Mark. And hopefully my apple, which was dull a little while ago before we started, is getting a little shinier and hopefully we'll see a good year for 2021. Thanks for being here.

>>> Thank you. >>> Mark: Thank you Michael. ♪ [Theme Music] ♪

2021-04-12 13:03

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