In the latest edition of AHLA’s online leadership series, Speaker of the U.S. House of Representatives Nancy Pelosi talks with Choice Hotels International CEO Pat Pacious about federal assistance for the hotel industry.
REPORT FROM THE U.S.—The U.S. hotel industry continues to struggle through the COVID-19 pandemic, buoyed early on by federal assistance, but the limitations in those programs combined with changing economic conditions have hoteliers wondering what Congress and the president will do next.
In a new edition of the American Hotel & Lodging Association’s online series The Forum, Speaker of the U.S. House of Representatives Nancy Pelosi spoke with AHLA President and CEO Chip Rogers and Choice Hotels International President and CEO Pat Pacious about a federal relief bill being negotiated in Congress.
The relief bill
The U.S. House of Representatives passed the HEROES Act almost three months ago, and since then another 3 million people have been infected with COVID-19 and another 70,000 have died, Pelosi said.
To fully reopen hotels in the U.S., the country must control the virus, and the HEROES Act addresses this through provisions for testing, tracing, distancing, masks and sanitation, Pelosi said. While previous legislation has addressed some of this, it wasn’t executed the way it needed to be, she said. The new bill helps pay health care workers, first responders, sanitation workers, transportation workers and teachers. It also provides funding for state and local governments bearing the brunt of the cost of the pandemic, she said.
The bill also gives money directly to Americans through extra unemployment benefits as well as direct payments, and addresses food insecurity through food stamps, she said.
There has been some debate on housing, specifically rents and mortgages, but it’s mostly residential and not commercial, Pelosi said.
The Terrorism Risk Insurance Act from 2002 provided a backstop for what insurance companies would be liable for and dictated when the federal government would step in, she said. There needs to be something similar now to provide aid to those who had business interruption insurance that didn’t cover the effects of the pandemic, she said.
The bill has an employment retention tax credit, and there could be tax credits that help with healthy workplace considerations, Pelosi said. Congress is also considering another round of capital for the Paycheck Protection Program, she added.
Congress and the administration have helped to minimize the impact to the livelihoods and small businesses of Choice’s hotel owners, Pacious said. At this point, Pacious said he has two key concerns in areas Pelosi addressed.
The first relates to liability protection, which is tied into the cleanliness standards at hotels, he said. The second one deals with liquidity, and Pacious said he was pleased to hear that recapitalizing the PPP is something that both Democrats and Republicans appear willing to do. Seventy percent of Choice’s franchisees took advantage of PPP loans, but it would help hoteliers if the application process could be simplified, he said.
There has been talk about limiting access to the PPP to businesses that are severely affected by the pandemic, and Pacious said he supports that approach. There were many who benefited from the PPP and didn’t need it as much as the hotel industry did, he said. A 50% economic loss threshold has been discussed, but that’s too high to provide meaningful relief to small business owners in the hotel industry, he said, adding that 25% to 30% would be preferable.
The hotel industry is an asset-heavy business for owners, and the operating margins are small, so owners are dealing with a significant amount of debt, Pacious said.
Destination management organizations are crucial to the hotel industry as they market local communities for travel, Pacious said. However, as 501(c) organizations, they were excluded from the previous rounds of PPP.
Pelosi responded by saying the HEROES Act offers new opportunities for not-for-profit organizations and does not limit by size. She also agreed with the need to simplify the PPP application process.
Pacious said he supports extending and expanding the employee retention tax credit. Having tax credits for travel expenses is likely a bargaining chip during the negotiations, but it would be helpful to the industry even if its only temporary, he said.
Reopening the economy
To fully reopen the U.S. economy, the country must bring down the rate of infection from the coronavirus, Pelosi said. Many people are afraid for their health and financial well-being during the pandemic, she said.
The monetary assistance the federal government is providing directly to people is helping stabilize the situation, she said. The $600 boost to unemployment benefits each week and direct stimulus payments are helping pay rents or mortgages and inject demand into the economy to help create jobs.
The current relief bill is a $3.4-trillion package, and while there will be negotiations over the final price tag, a bill of that size is necessary, Pelosi said. The federal government has helped shore up the stock markets through various means, which creates a floor, but the goal is to create a similar floor for the American people, she said.
“We are a consumer economy,” Pelosi said. “The more people have confidence to spend, the better and sooner our revival, but it’s hard if we do not curtail the growth of this virus.”
Main Street lending
During the call, Pelosi asked Rogers and Pacious to clarify their criticism of the Main Street Lending Program through the Federal Reserve.
Rogers said the program is a “big failure for anyone whose business relies on real estate.” The formula for accessing loans through the program mostly precludes anyone with a significant amount of debt or almost any real estate debt, he said.
“I’m not aware of any hotel company or any individual hotel that has been able to gain access to the Main Street Lending Program because of that debt test,” he said.
Pacious said the loan threshold is six times a company’s earnings. Given the high cost of hotel assets, particularly for properties in San Francisco and New York City, relative to earnings, hotel owners can’t get there from the standpoint of covering their mortgage.
C-corps like Choice have plenty of access to the capital markets because of what the Fed has done to backstop them, Pacious said. The Main Street Lending Program was meant to help small- and medium-sized businesses, but the loan threshold is prohibitive.
“That’s a real showstopper with regard to anybody moving forward with that plan,” he said.
Pelosi said she would follow up with the Federal Reserve to find out the reasoning behind the threshold. It’s likely other industries are affected by that threshold as well, she added.