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2020 left hotels reeling, 2021 may signal the start of their recovery

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Posted at 5:58 PM, Mar 10, 2021
and last updated 2021-03-10 19:38:50-05

CLEVELAND — From the day it first arrived, the coronavirus pandemic has brought havoc on the hotel industry, which ranks among the hardest hit and, potentially, one of the last to fully recover. Experts said this is especially true for hotels in downtown urban cores, which primarily bank on group business-like meetings and conferences. However, as Cleveland prepares to host several large events in 2021, namely the NFL Draft, data suggests the recovery process could begin soon.

According to the Cleveland Downtown Alliance's annual report for 2020, the collective occupancy rate among the 27 hotels downtown and in University Circle was 27.8%, which is nearly a 40% decline compared to the 67% occupancy rate in 2019. Revenue per available room also dropped more than 60% to just $33.10.

Patrick Mayock, the vice president of research and development at STR, a global hotel and tourism data analytics firm, said the hospitality industry bottomed out during the initial peak of the pandemic in March 2020 and early April. In the subsequent months, there was never a strong recovery, even through the summer months, Mayock said.

"We're still seeing year over year decreases at a pretty significant extent but we do expect those numbers to finally start trending in the right direction really beginning in April," Mayock said. "Group business fundamentally disappeared over 2020. Downtown hotels are so reliant on that type of business compared to some of the other hotels in the surrounding markets. Having a marquee event like the [NFL Draft] or even things half that caliber are really important."

Two of downtown Cleveland's most recognizable hotels, the Hilton Cleveland Downtown hotel and The Westin Cleveland Downtown, are in precarious positions as the industry looks ahead to a possible recovery.

The Hilton Cleveland Downtown, which opened in 2016 and played an important role in the Republican National Convention that year, required an additional $22 million in public subsidy for 2020 and 2021 from Cuyahoga County. The additional infusion of cash, which is on top of the $10 million annually that the county pays for the hotel, covered debt service, tax, and insurance payments.

The Westin, on the other hand, is in an entirely different type of trouble. Renovated and re-opened in 2014, The Westin may close next week as the mortgage lender seeks foreclosure. Westin's owners, Optima 777, which is a subsidiary of Optima Ventures of Miami, is the subject of a federal investigation into accusations that company officials used real estate to launder money. According to court documents, Optima owes more than $30 million in principal and more than $4 million in late fees, taxes, interest, and an outstanding loan from the City of Cleveland.

As the industry looks ahead to a more profitable 2021, the NFL Draft in April could provide the much-needed injection in a post-pandemic recovery.

"Hosting the NFL draft in Cleveland, we will have a percentage of something. We have done the 'percentage of nothing' model for the past 12 months and that's a model that no one ever wants to go back to," said Emily Lauer of Destination Cleveland. "To show the world that Cleveland can be really part of the return to live events, we're really grateful for that and quite frankly it's quite humbling."

Lauer said Destination Cleveland's market research shows that there is substantial consumer demand for travel and leisure activities, especially after many family vacations and getaways were halted in 2020. With that research in mind, Destination Cleveland has broadened its marketing approach to attract more visitors from throughout the region.

When looking at the hotel industry overall, it's clear that Cleveland's declines in occupancy are hardly unique.

"This isn't just a Cleveland problem. This is a global issue that the hospitality, travel, and tourism industries continue to face," Lauer said. "Destination Cleveland's recovery plan that is work being done in 2021 is to preserve the Cleveland experience. That work relies heavily on working in tandem and collaborating with our industry partners."

Lauer and Mayock both said that the upcoming NFL Draft may also have symbolic value in that it will assure people that it's safe to travel again.

"What we found is that a significant portion, the majority in fact, of travelers and the traveling public do anticipate and expect to travel this year. There's a lot of pent-up demand out there," Mayock said. "We don't expect group business to be fully back and roaring until the later stages of the year but having something like the draft is certainly a good way to jump-start things, setting that trajectory off from a higher foundation from what it would have been otherwise."

The recovery will be neither quick nor easy, Mayock said. Although they became recessions for entirely different reasons, the industry's recovery following 9/11 took about two years. The hotel industry's recovery following the Great Recession took about three years. Each market will recover at a different pace, Mayock said.

"When demand falls, it falls fast and it falls quickly," Mayock said. "It takes quite a bit longer to climb out of the hole than it does to dig the hole."