Money minded

In an unpredictable market, hoteliers find ways to maximize revenue

by NICK FORTUNA

During the first wave of the pandemic, as travel halted and hotel occupancy rates slumped into the single digits, some hoteliers managed to step up for their communities and bring in some revenue at the same time.

By renting out rooms to medical professionals, first responders, government officials, essential workers, and people needing to quarantine, hoteliers played an important role in combatting COVID-19 even as they struggled to stay afloat. Now, with the pandemic receding, the hospitality industry is expecting brisk summer business, all while acknowledging that a new coronavirus variant or a recession could smother this fragile recovery.

CREATIVE THINKING
For hoteliers, one key to maximizing revenue in an unpredictable market is to continue looking for each property’s highest and best use. As an example, former AAHOA Board Member Sawan Patel points to the Best Western Plus Northwest Inn & Suites in Houston, a 60-room property now being used to shelter the city’s homeless population.

Patel is the managing partner of Unity Hotels Group, a Houston-based company with six hotels among its real estate holdings. Early in the pandemic, Patel reached an agreement with the city to rent out rooms at the Best Western to medical professionals and others affected by COVID-19. But when that need subsided, business travel had yet to resume, and leisure travel was still at a minimum.

“For hoteliers, one key to maximizing revenue in an unpredictable market is to continue looking for each property’s highest and best use.”

With “limited options” available, Patel said it made sense to re-up with the city. Last summer, the city leased the entire property and hired a third-party management company to run it. The hotel now provides transitional housing to city residents who have recently become unhoused due to job loss, medical issues, rising rent, or other setbacks, he said.

“Northwest Houston is still a pretty slow market, so this has been really good for us,” Patel said of the program.

The lease stipulates that Unity Hotels Group is responsible for maintaining the building and its equipment, including two commercial washers and dryers, but the city is responsible for damages to the property, Patel explained.

“Damages obviously are going to be your biggest concern in a situation like this,” he said. “The details of the contract are very important, so make sure all your concerns are addressed in it. In every business partnership, it comes down to the contract.”

FINDING OPPORTUNITY
Situated 15 minutes from downtown Houston, the Best Western typically gets considerable overflow traffic when there’s a big event at the George R. Brown Convention Center. Patel said he’s been monitoring occupancy rates at his company’s other Houston properties and reaching out to corporate clients to gauge their lodging needs, hoping to capitalize when business travel resumes in earnest.

Meanwhile, the city recently renewed its lease at the Best Western through the end of the year and has an option to extend it further, Patel said. When the conventions eventually return, Unity Hotels Group will resume operating the hotel, but until then, the homeless program is generating meaningful revenue.

For Patel, the takeaway is that hoteliers should maintain contact with local officials and major employers to see if there are opportunities for similar partnerships.

MAKE IT WORK
Tanmay Patel, AAHOA Young Professional Director Western Division, who owns six hotels in West Texas with his business partners, was in a similar situation early in the pandemic. Initially, he rented out the top two floors of a three-story property to municipal officials and a local hospital, while the bottom floor remained available for paying guests.

“That way, even during the worst of the pandemic, when hotels were really feeling the strain, for me, it wasn’t as bad as it could have been,” he said.

With COVID-19 abating, Patel has switched business strategies at that property. In the past, he would limit weekly rentals to about 10% of rooms, seeking to “maximize revenue day over day,” he said. Now, however, extended-stay guests account for about 40%-50% of rooms, partially because rents in the area have risen sharply, leaving many lower income people unable to afford apartments, Patel said.

Extended-stay guests may get housekeeping services only a few times a week, or whenever they ask for them, which has lowered Patel’s labor costs, he said.

“You can see how the extended-stay hotels are doing great, so I have tried to shift more toward a longer term stay,” Patel said.

That strategy has paid off, with the hotel approaching full occupancy most nights, according to Patel. “If I can fill the hotel 40%-50% with extended stays, then I can go ahead and raise the rates for the other rooms and still manage to actually fill out the hotel,” he said.