COVID-19 and its aftermath are testing the relationships between commercial hospitality real estate owners and operators like never before.  Recovery from this crisis will require temporary and permanent changes to the contractual and business relationships that govern this important industry.  Commercial real estate owners and developers, as well as attorneys, brokers, and finance professionals will need to adjust their expectations and practices to thrive in the post-COVID environment.

The circumstances presented by the effect of COVID-19 on the hospitality industry were unexpected and unprecedented.  Earlier epidemics, such as SARS, were but a faint shadow of what emerged over the last 18 months.  The industry did not expect, nor was it prepared for, the scale of the crisis with case counts surpassing SARS in weeks and reaching a global spread unprecedented in modern times.

Unprecedented declines will take years to rebound.  For example, revenue per available rooms (RevPar) fell by 50% in 2020 as compared to 16.7% in the "Great Recession" of 2009.  CBRE forecasts Occupancy will not recover until 2023, and higher-end chains, which rely heavily on business travel, will lag.  [E&Y Material, quoting CBRE Hotels' Americas Research, Kalibri Labs, Q2 2020].  There is a growing consensus that business travel will not return to pre-COVID-19 levels for years.  Industry experts believe there will be long-term effects on the nature of business travel, including less non-client travel, greater approval requirements, fewer individuals per trip, and adjustments in stay-length, requiring hotels to adapt to the decline in business travel.  There will also be sustained adjustments to operating costs as hotels focus on hygiene, enhanced cleaning, and regulation-driven employee benefits costs (i.e., national minimum wage) and greater insurance requirements.  These issues will come to the fore as owners and operators begin to engage with their lenders on the timing of comprehensive negotiations affected by vaccine distribution, government relief and, ultimately, the end of lender forbearance.