Hotel brands have modified requirements for furniture, fixtures and equipment budgets to help owners survive the drop in travel prompted by the coronavirus, but this short-term solution could lead to long-term problems, executives said.

“We immediately said when [the pandemic] happened in March, just suspend all [property improvement plans] until the end of the year,” said Ron Pohl, senior vice president and chief operating officer at Best Western Hotels & Resorts. “We didn’t know what we didn’t know at that point in time. I think everyone was optimistic that this would be a short-lived virus and that business would get back to normal sooner rather than later, and we obviously found that to be contrary to what has truly happened.”
The most important thing right now is taking care of the customer, Pohl said. Best Western has looked at what hotels need to have, not what the brand wants them to have, and has pushed furniture, fixtures and equipment budget requirements out into 2021.

The only hotels that are being held accountable for such budgets “are those hotels that are performing in the bottom 10% of the brand because they are probably not providing the customer experience or meeting the expectations customers have today, as well as they could damage the brand reputation and the other 90% of the owners,” he said.

Greg Friedman, managing principal and CEO at Peachtree Hotel Group, said many hoteliers have dipped into furniture, fixtures and equipment reserves to cover operating costs or to make debt service payments, and that Peachtree has considered doing this at some of its properties as well.

While it’s great that the brands are offering this flexibility, Freidman said it could be creating another problem for owners.

“Unfortunately, you’re trading one problem for another in the sense that at some point in the future you need those renovation dollars to improve the property or to complete necessary renovations or [capital expenditure] programs,” he said. “Although it is a short-term solution, it ultimately could lead to long-term problems.”
Mit Shah, CEO of Noble Investment Group, said on a panel during the NYU conference’s recent webinar series that there’s a mountain of debt building. In many cases, there are no furniture, fixtures and equipment reserves as owners manage through this crisis, but one day, the brands will wake up and tell owners they need to renovate, he said.
“There’s no money to renovate because all the FF&E reserves are gone … and there are all these pressure points,” he said.

The brands have been flexible on timing when it comes to completing property improvement plans and other renovations, Freidman said.

“They’ve also allowed us to not keep FF&E reserve payments, so they’ve allowed us to stop making a 4% to 5% FF&E reserve payment and that’s allowed us to redirect those dollars,” he said.

There’s also more flexibility from the brands for hotels with food-and-beverage outlets, Freidman said.

“The actual food-and-beverage offerings that are in those properties, they’ve allowed us to minimize some of those offerings as well as to reduce the hours of operation for some of those outlets, which has allowed us to cut operating costs down,” he said.