Starwood’s Sternlicht Predicts Tough Road Back for Retail, Hotels
April 23, 2020 | Jake Mooney | S&P Global Market Intelligence
The coronavirus pandemic will force shopping mall owners to spend large amounts of money replacing insolvent tenants, while hoteliers hosting group events may eventually have to ask attendees to sign liability waivers, Starwood Capital Group Chairman and CEO Barry Sternlicht said.
Starwood Capital invests in global real estate across the property spectrum and has more than $60 billion in assets under management. In a webcast interview with Willy Walker, chairman and CEO of the real estate lending and brokerage firm Walker & Dunlop Inc., Sternlicht said his firm received rent payments in April from roughly 95% of its office tenants and 93% to 94% of apartment tenants, but only about 20% of retail tenants, with strip centers outperforming malls.
Walker said nearly 50% of the retail properties in his firm’s loan portfolio have asked for forbearance, and close to 70% of the hospitality properties.
In malls, “it’s going to take a lot of money to replace the tenants that don’t make it,” Sternlicht said. “I think there’ll be physical retail. I think the number of names is going to be smaller, and I think the malls will be radically re-tenanted, which can only happen if the existing owner has the money to put up for tenant improvements or [to] change the mall.”
For hotels, he predicted 2019 occupancy levels will return sometime in late 2021, with lower-priced roadside hotels rebounding faster. Extended Stay America Inc., in which Starwood is an investor, is renovating some properties but is seeing “shocking” occupancy levels of almost 80% in open properties, Sternlicht said.
U.S. hotel occupancy across chain scales and markets was down 64.4% year over year to 23.4% in the week ended April 18, according to data provider STR.
In larger hotels hosting group events, business may be slow to return because of conference attendees’ fear of infection, and hotel operators’ fear of lawsuits, Sternlicht said.
“I think we’re going to have to come up with some kind of liability,” he said. While there has been talk of legislative action to waive liability for business owners, he added, “I think what would work just as well, and be a lot cheaper, is if we just had people sign: ‘I understand I’m staying at your hotel, you tell me you’ve done this and this, and I understand I could come up with COVID and I won’t sue you if I have it.”
Similar waivers may also be necessary on airplanes and in cruise ships, he said, adding, “By the way, with 14-day gestation, we don’t even know where they got sick. How do they know they got sick in my hotel? They could have got sick coming to my hotel.”
Sternlicht is a member of a group of business leaders advising President Donald Trump about reopening the U.S. economy. He said he considers himself a political independent, but suggested that Democratic leaders may intentionally be prolonging distancing measures to hurt Trump politically.
“It seems to be that the Democrats and Democratic leadership does not want to open the country,” he said. “You could say they’re being humanitarian. You could also say they want the country to stay in a recession because Trump’s chances of winning in a recession are negligible. So if it’s really compassionate benevolence, and they really care about everybody, that’s one thing. If it’s some master plan to keep the economy closed so the country can’t go anywhere, and they can ride on desperation — the Democrats can flood the zone with gifts for people — that would be sad.”
He added: “It’s not me being cold. My son is angry at me: ‘You can’t open the country, what’s wrong with you?’ I’m saying, you don’t understand financial suicide. You don’t understand the despair of a family that can’t open a pizza parlor and they’re going broke, and you’re destroying their life savings which they invested in their pizza parlor or their barber shop or their hair salon.”
Sternlicht said Starwood received money from the Small Business Administration’s Paycheck Protection Program, which aims to help businesses retain employees.
“The largest loan we got was $2 million, and 75% is going right out the door, right to the employees that make less than $100,000, and I’m delighted to have the ability to help them,” he said.
Source: S&P Global Market Intelligence
