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Covid-19 fallout on lodging industry

Whilst airlines are the most severely affected businesses within the travel industry, as soon as the epidemiological situation subsides airlines (previously existing or new ones) will be flying passengers all over, since airplanes, airport slots are relatively commoditized and highly regulated resources - in a broader way. If an airline goes bankrupt, airplanes are repossessed, then resold, stored, or put into operation somewhere else, sometimes in a matter of a few weeks.

I was reading, however, that lodging is poised for major chaos in Europe, especially small operations (family-owned or not). The bankruptcy of wholly-owned hotels (same entity owns the building and operates it) is much more complicated, given mortgages, liens etc. A fraction, maybe a large one, of family-owned small hoteliers might decide they do not want to restart all over after the crisis, especially with rapidly accumulating debt, if the crisis also affects severely summer peak season.

Another business model particularly hit by the crisis is the "buy-to-short-term-let" one, whereas someone buys a handful of properties in sought-after locations, then put the individual apartments/villas/flats for rental on AirBnB. It is often a highly-leveraged business where the owners, having entered the business using a substantial part of their life savings, sign up for 3, 5, maybe 10 mortgages and use short-term income rental to amortize. These operators have no way to keep all the mortgages on time if bookings completely dry up, and might face a serious and steep, if temporary, decline on sales prices.

There are some early-stage discussions for some sort of emergency measure that would prevent real estate hedge funds and very large portfolio companies from acquiring hundreds of lodging properties in major European cities on the cheap, although they might be one of the few providing the liquidity for those who need/want to sell right now. There is a particular concern in Italy, not only for the severity of the epidemiological crisis itself, but also because there is some talk about how lodging in Italy would be ripe for a OYO-style consolidation of small operators, i.e., some new well-funded chains that take over hundreds of hotels and B&B in a matter of months. Italy also has an unusual amount for medium-size non-major-chain hotels, which are under other sources of pressure that predate the crisis.

Another interest/pressure group is starting to agitate for an EU-wide temporary cap on commission rates charged by reservations sites such as Booking, or at least some statutory prohibition on commission rate discrimination (they wouldn't be able to charge a higher % for hotels not on chains (e.g. Accor) that have the power to push back on their fees as % of fees). I am unsure this would fly, let's see.

Other items on their lobbying wish list for a post-crisis market include some measure to incentive/force/cajole companies to give more freedom to individual business workers of large international companies to pick their own lodging instead of negotiating discount fares networkwide (e.g. Siemens negotiates a discount rate with Accord and send most of their employees on travel directly to Accor properties). I am not sure how feasible is this.

Finally, something I think it is much more likely to happen is a widespread crackdown on grey-market AirBnB, VRBO and similar rentals. They are too easy of a target for a post-crisis scenario where acute housing prices will be even more of a political issue, and vacation rentals within residential buildings/communities already carry increasing local concerns.

Posted by
1893 posts

Another business model particularly hit by the crisis is the "buy-to-short-term-let" one, whereas someone buys a handful of properties in sought-after locations, then put the individual apartments/villas/flats for rental on AirBnB. It is often a highly-leveraged business where the owners, having entered the business using a substantial part of their life savings, sign up for 3, 5, maybe 10 mortgages and use short-term income rental to amortize. These operators have no way to keep all the mortgages on time if bookings completely dry up, and might face a serious and steep, if temporary, decline on sales prices.

For those operators, I have no sympathy whatsoever. What they are doing is operating a parasitic business of running a hotel without calling it a hotel. They get no hotel permits, they drive up rents in cities with already high rents, they create nuisance conditions for neighbors. If this situation makes such businesses unviable, and people lose a lot of money, good. The AirBnB approach is a bad one in most cases. Yes, I have rented from some places like that. And in some resort areas, these types of accommodation do offer a lower cost alternative. But in the long run, they damage a lot of cities by increasingly concentrating rental housing into short-term quasi-hotels.

Posted by
4777 posts

Another business model particularly hit by the crisis is the "buy-to-short-term-let" one, whereas someone buys a handful of properties in sought-after locations, then put the individual apartments/villas/flats for rental on AirBnB

You mean AirBnB places are not all "Grandma renting the place for few weeks to visit the grandkids?" Who would have thought.

Posted by
720 posts

Agree with the two Pauls--no sympathy at all for the short-term rental speculators for all the reasons given above.

Posted by
1029 posts

I’m generally not much of a fan of Air BNB, not because of the business practice, it just doesn’t work out well for a solo traveler who doesn’t want to cook and doesn’t care about neighborhood charm usually.

But, with Air BNB gone or greatly reduced, you can say hello to all sorts of new fees. Resort fees, left luggage storage fees, energy surcharges, all sorts of those will spring up.

Posted by
2809 posts

You mean AirBnB places are not all "Grandma renting the place for few weeks to visit the grandkids?" Who would have thought.

I think this is common knowledge by now :)

AirBnB loves to peddle these stories of 'helping connect the households with spare space with travelers looking for authenticity'. At least in Western Europe, that is most definitively not the case. No wonder harsher restrictions (with some penalties that bit on the landlords) in Amsterdam, Berlin, Barcelona and Paris brought down the number of flat listed on AirBnB considerably.

I have a colleague who got into this business in Amsterdam. He had to get out, but didn't lose money as real estate prices were still rising fast. It lasted a good 5 or 6 years for him. Can't deny it is hard work to manage short-term rental properties, but it was a huge financial gamble that he took together with his very-upper-middle-class parents. They did it as a company, due to specifics of tax law in the Netherlands, to make more expenses tax-exempt.

Spare rooms or ancillary spaces in lived-in properties are a small fraction of listings in urban areas. They are more common, and less problematic, in lower density places, where the owner might have a building with enough space to build a self-contained studio and rent it.

I do agree AirBnB within buildings with shared spaces is problematic. The tourists might think it is great to 'live as a local', but they don't know the details on trash disposal, recycling bins, how to (and not to) manage package deliveries, usage of common rooms... so even well-intentioned guests become a nuisance and the neighbors have no way to know who lives next to them.

Posted by
30 posts

I have used AirBnB and have had good experiences. Typically we have apartments or condos that are individually owned. Hotels have slowly raising their fees also. How many times do you see any advertised rate and then it changes when you put in a specific date and changes again from Thursday to Friday. Yes, supply and demand, I understand. Then you find out they have a daily parking fee which is not cheap. There are issues with AirBnB but its still a reasonable alternative to hotels at times. IMHO, hotels need some competition to keep rates/services in check.

Posted by
10675 posts

Let me preface this by saying I am no big fan of bailouts.

Then a few notes on AirBnb. To begin with, I believe you are actually discussing short term vacation rentals. Like Kleenex, AirBnb is a box and tissue paper comes in all sorts of boxes. Actually it’s sort of rare for a short term rental to only be on the AirBnb platform; generally you will find them on multiple platforms. I have no love for any of the platforms each has its pros and cons. Oh, disclaimer: I own two short term rentals (STR’s).

The financing scenario you describe may very well be used by a few, some or even many of the STR owners. I really have no idea and have never seen any statistics. No matter how they are financed, as long as it’s legal it really isn’t the concern of anyone. Mine, like the dozen or so other owners that I am acquainted with in my market place were paid for in cash or through second mortgages on their homes in Hungary, the US, Canada or the UK.

Who are we? Yes, some are renting their inherited late Aunt Matilde’s apartment and there are some big business conglomerates in a few markets. Almost everyone that I know in my market share a similar circumstance as me; we found a place we enjoy and we purchased a “vacation home”. To make ends meet on that vacation home we rent it out when we don’t use it. Not too sinister.

Going back to the financing scenario. The mortgage on a $100,000 property (cheap for my market) would be about $500 a month at today’s rates (but good luck finding a US bank that will lend you money on a home in Europe). With taxes, utilities, upkeep and repairs figure no less than $750 a month or $9,000 a year. Now I am in a good market so I can rent, in a good year, 200 nights a year at an average of $40 a night after management company fees, cleaning costs, etc. That works out to $8,000 a year; which if financed as you describe would be a nice little $1,000 loss. Now I am certain there are markets where financing generates profits, but it’s probably limited to places like Paris, Amsterdam and NYC. So why do it? Well, I have a vacation home for about $85 a month. The dozen or so acquaintances I have in the business don’t do any better.

Social Impact. Well, yes, they have made living in the city center in some locations too expensive for many of the locals. If there were no STR’s in Old Town, Prague; it would still be too expensive for locals to live there; and who would want to other than tourists? An STR in that situation is probably the highest and best use of the real estate. In other locations local governments, representing the citizens of the community, are enacting legislation that reflects the values of that community. That’s the way it should be. If the citizens of City X haven’t decided to run the STR’s out, who am I to say they are wrong to be there? That would be a bit Big Brother Arrogant. My market has restrictions and I run the places by the book. After all I am a guest in their city and that requires a heightened level of responsibility and respect for their customs and laws. It gets a little harder, more complicated and less profitable each year; but that’s my risk.

But it hasn’t always been a bad thing as the press implies, and while every location and situation is different, in my market at least the STR’s have pumped an enormous amount of money in to what were, 20 years ago, struggling economies and decaying neighborhoods. While some citizens might find my neighborhood too expensive today, as many wouldn’t want to live in my neighborhood if it still looked as it did 15 years ago, before the STR’s revitalized the neighborhood.

So generalities just don’t work. There is good and bad in the concept. Leave it to the individual communities to choose for themselves; don’t pretend to know what is best for them and if you do want to champion a cause, learn about it, then go for it.

Posted by
2760 posts

AirBnB loves to peddle these stories of 'helping connect the households with spare space with travelers looking for authenticity'. At least in Western Europe, that is most definitively not the case.
I'll agree that you're probably right in large European cities. But I've rented STRs (mostly AirBnB) in France, Switzerland, Canada, and my home state, and I think the largest city was Bern Switzerland. As far as I know, the places were all individually owned; in half the cases the owner(s) lived in the same place or next door.

Posted by
10675 posts

Tim
Your NYT article states for your hometown:

WYCKOFF — The Township Committee this week passed an ordinance banning
residential rentals of 30 days or less.

The ordinance, which the committee unanimously approved, is intended
to control the growing practice of renting a room or entire home to
travelers through websites such as Airbnb.

Which is exactly what should happen. The citizens came together and determined what they believed best for their community. I think that is an excellent concept. I bet your city has all sorts of ordinances designed to provide a quality of life the community desires.

Some day maybe someone will take the ordinances to court. The argument could be made that government is artificially depressing land value thereby depriving some sort of preexisting value without compensation. Not sure. I have no opinion on it but if it ever comes up I would love to hear both sides.