Government must act quickly to save hotels, says Peachtree CEO Greg Friedman

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Peachtree Hotel Group | Amazon AWS

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Don’t get him wrong, Greg Friedman greatly appreciates the assistance the federal government is providing for businesses and their employees in the wake of the coronavirus pandemic.

But Friedman, the CEO and managing principal of the Peachtree Hotel Group, said more help is needed to keep hotels and their workers from suffering further economic pain.

Peachtree owns approximately 50 hotels and has debt positions on about another 70 hotels across the United States, Friedman told Georgia Business Daily. But those properties are mostly quiet now, and the revenue that once streamed in has become a small trickle.

Still, he is thankful for the relief aid offered by Congress and President Donald Trump.

“In these times of extreme partisanship, it is extremely gratifying to see both sides of the aisle come together to support the CARES Act, and my company is quite appreciative of the financial aid it provides my organization,” Friedman said. “Unfortunately, the cashflow shortfall created by COVID-19 will be materially deeper than the aid provided by the CARES Act and Paycheck Protection Program. To keep the economy and small- to medium-sized business afloat, I believe our elected officials will need to do much more to provide relief to business owners and their employees.”

The CARES Act provides Small Business Administration loans based on 2.5 times the company’s monthly payroll. Friedman said that figure should be higher.

“Given the duration of the shutdown coupled with its lingering effects over the next six to 12 months, I believe 2.5 times will be inadequate as it relates to hotel properties,” he said. “We estimate that we will need a minimum of 12 to 20 times monthly payroll to cover other expenses, such as property taxes, mortgage expenses, insurance and the like. Ultimately, it will vary depending on municipalities, size of hotel asset, cost basis, actual duration of National State of Emergency (lockdown on any travel across the US), etc.”

The loans will be forgiven if all workers are back on the job by June 30—a far too optimistic date in his view.

“Realistically, we don’t expect travel to return to normalized levels for a minimum of nine to 12 months,” Friedman said. “Most hotels will lack the demand to support the associated costs of rehiring all employees by June 30th, 2020. The requirement should be pushed until the end of 2020 and allow a greater percentage of the forgivable loan from Payment Protection Program to go towards other fixed expenses such as mortgage expenses, utilities, property taxes, insurance, etc.”

Title IV funding is available from the CARES Act, but there are limits on compensation and dividends must be halted. Many in the hospitality industry see the bill as having a distinctly pro-labor union bias.

“Although I do believe these additional requirements could make political sense, ultimately, it will deter organizations from fully utilizing the program given the handcuffs and uncertainty around future market conditions,” Friedman said.

While he has not personally talked with members of Congress, he does have some advice for them.

“I believe Congress should pass legislation that backstops the insurance companies on paying out business interruption claims as it relates to COVID-19,” Friedman said. “I also think it makes sense to provide hotel owners tax credits on all operating costs, including payroll, debt expense, etc., for the next 12 months so companies can monetize these credits to help offset the economic loss driven by COVID-19.

“While I haven’t personally spoken to any congressman as of today, I am in regular contact with the American Hotel & Lodging Association (the industry’s lobbying group), which has had conversations with the White House and Congress. I think it is critical that our elected officials realize low-cost loans are a nice benefit, but ultimately saddle owners and operators with potentially devastating future debt.”

Friedman offers a grim diagnosis unless the government injects “significantly more capital into the hands of hotel owners and operators” within the next 30 days: “I believe the majority of hotel owners and operators will end up insolvent and out of business."

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