Better times are starting to check in at Northeast Ohio hotels

Nic DiLillo, general manager of the Crowne Plaza Cleveland at Playhouse Square, is overjoyed to see the buzz back around the hotel at 1260 Euclid Ave. after shows returned to operation at Playhouse Square following pandemic closures.

DiLillo also is glad to see leisure travel returning to the Northeast Ohio lodging market as the pandemic has worn on, but his eyes are fixed on the still-missing part of the equation: the rebound of the business travel market.

“We’re seeing a new norm in hybrid work from home and travel,” DiLillo said. “We’re trying to make adjustments to what the future will be. We are still seeing the impact of the hybrid workforce, but I don’t want to put any dates in writing for when business travel will return.”

Normalcy for the region’s hotel market is unlikely until business travel retains its former volume after COVID-19 slowed down corporate travel for business and meetings. The industry benefited from the rise of leisure travel in 2021 during the spring and summer, which helped hotels make it through the pandemic.

Some hotel properties are once more selling — providing a measure of confidence in the industry — and realty developers are returning to new hotel projects as hotel fundamentals climbed out of the cellar of the first year of the pandemic in 2020.

In Northeast Ohio, business travel accounts for about a third of the hotel business. So a full return to profitability won’t emerge until business travel rebounds — but that’s a big question mark.

Radhika Reddy, who added the title of hotel general manager of the Ariel Broadway Hotel she developed in Lorain during COVID-19 to her other tasks as the founding partner of Ariel Ventures LLC, a Cleveland economic development and financial consultant, puts it simply.

“Our hotel benefits from a location near the lake in the summer for leisure travel,” Reddy said. “We may get booked full for some weekends, but even in the summer we need business travel for the weekdays, especially Monday, Tuesday and Wednesday.”

Even so, Reddy said 2021 was better for the hotel in a historic Lorain building than 2020 and hopes that 2022 is still better.

Individual operators are not alone in their musings on when corporate travel gets back to normal.

David Sangree, president of the Hotel & Leisure Advisors consultancy in Lakewood, doubts business travel will rebound this year.

“People have gotten used to doing business using Zoom calls and not having to travel,” Sangree said. “Many Cleveland-area urban hotels will find occupancies will not be as strong as in 2019 until business travel comes back. Companies often do a lot of training for employees. It’s a factor. They’ve done that through Zoom the last few years. Training works better in person, but it remains to be seen when the need for training begins to help hotels.”

Laurel Keller, senior vice president for Hospitality, Gaming & Leisure in Newmark’s Cleveland office, said there is concern that business travel may not return to the level of market share pre-pandemic.

“The recent leisure demand increase has positively impacted several hotels in Northeast Ohio, but group and commercial demand also needs to return to complete the recovery,” Keller said, and that question mark tempers the optimism starting to surface in the region’s hotel business.

Given that the nation and its hotels moved into unknown territory as the pandemic struck in 2020, the two years of experience since have brought some insight into what the future may look like.

On the plus side, financial woes for hotels did not prove as desperate as they immediately appeared in 2020. “However,” she added, “lenders’ flexibility with loan payment deferrals/modifications/forbearance helped prevent a significant wave of foreclosures.”

The best insight on the behind-the-scenes impact on the lodging industry, albeit at a national level, is from Trepp, a New York-based loan analytics and related data services firm.

CMBS, or commercial mortgage-backed securities, loans hit a 30-day delinquency rate of 23.5% in June 2020. However, as lenders worked with owners for loan deferrals and other measures to keep the industry stable, the markets also started recovering.

By May 2021, the delinquency rate fell to 14%, and by December 2021, to 8.8%. Trepp concluded that by the end of last year, $7 billion in hotel loans were late, compared with $33 billion in June 2020.

Improved fundamentals, although they varied by hotel, location, segment and the owner’s fiscal strength, also accounted for the improvements. STR, a global hospitality data and analytics company that’s part of CoStar Group, reported that in 2021, hotel occupancy in Cleveland hit 51%, compared with 37% in 2020. In Akron, occupancy was 54% in 2021, compared with 41% in 2020.

Both areas are still below 2019 occupancy levels, although STR data shows hotels in both areas have been able to hike average daily room rates above 2020 levels, though they still trail 2019 pre-pandemic rates.

Sangree argues that hotel operators tried to maintain room rates during the pandemic, because cutting room rates during the Great Recession did not bring justifiable results.

The other factor that bodes for a brighter outlook is that hotels are transacting again, although at bottom-fishing pricing.

Sangree said many hotel operators have felt such sales give some sense of hotel values that were missing in the grip of the pandemic. However, the marketplace is still constipated because buyers want to buy at prices indicated by 2021 revenues, while sellers generally still want to receive prices based on the results they had in 2019.

Keller said she views recent sales as simply an indication that the market may be thawing and lenders are starting to look at deals again where the values are supported by revenues or the strength of the borrower.

New challenges have also emerged as the lodging business, like most types of service businesses and some others, are having problems filling open positions.

“You’re getting interviewed as much as you are interviewing,” DiLillo said of interviewing prospects.

Keller said, “Many hotels still are understaffed, though the situation is improving. Be patient with desk agents, valets, servers, cooks and housekeepers, as well as their supervisors and managers.”

The other element that rings true in the hotel business is that managers are focusing on the basics of their business.

For example, DiLillo said delays in weddings during the pandemic are reaping benefits for hotels today, as they may sell blocks of rooms associated with a wedding at their hotel or elsewhere in town.

“We all are having more weddings than we ever have had,” he said, noting wistfully,”We only have 52 weekends in the year.”