Category Archives: Business

Will hotels join malls on the growing list of deserted former landmarks?

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A few years ago, I linked to the review of a photo book featuring dead and abandoned shopping malls, including one in Ohio that was once the largest mall in the country.

Changing tastes and demographics undercut the viability of many retail centers that had become common features of suburbia, and the photos convey the eerie reality that is normally out of public view.

Now I have to wonder whether the landscape is soon to be similarly littered with shuttered and abandoned hotels and motels whose owners or investors were unable or unwilling to wait out the current collapse of the travel market. With leisure travel virtually flatlining in less than two months, it is not at all clear how many properties with be able to resuscitate their businesses if and when the world starts traveling again.

And certainly some of those financially marginal property owners are likely to be asking for public assistance to stay afloat, citing their importance to their employees and the larger community. What’s the proper response going to be?

CMBS could pose risks for some Hawaii’s hotels & retail properties

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CMBS. Not exactly a familiar acronym to most of us. It stands for collateralized mortgage-backed securities, which refers to the repackaging of the underlying mortgages beneath hotels, shopping malls, and other large properties to create securities which are then sold to investors, offering a way to finance debt beyond the relative safety of plain vanilla mortgage loans.

Hawaii hotels are sitting on billions of dollars of CMBS which are subject to debt service payments and eventual repayment of the principal amounts. But the current lockdown of Hawaii’s tourism industry could leave many facing difficulties making required payments.

Back in early March, prognosticators were suggesting Hawaii’s visitor industry could see revenue declines of 15-35% this year due to the COVID-19 pandemic. Under those scenarios, Hawaii’s tourism-based industry was rated likely to weather the financial storm, with perhaps a couple of shaky properties.

But a virtually total shutdown of the entire industry for an extended period of time, with no clear path to full reopening, doesn’t just mean a high level of unemployment among hotel, restaurant, and retail employees.

The danger, of course, is if hotels may be unable to cover their debt service payments and default, especially if Hawaii’s lockdown is prolonged. With revenues down to zero at this time for most Hawaii hotels and resorts, it’s hard to imagine that there isn’t a lot of fear and trembling behind the scenes.

Pacific Business News called attention to the problem in a March 31, 2020 story.

In a March 27 letter addressed to a host of federal regulators, the heads of the American Hotel and Lodging Association and Asian American Hotel Owners Association said the industry’s “unprecedented cash flow crisis” brought on by the COVID-19 pandemic requires a separate financial lifeline as well as special protections from the sector’s legions of lenders and loan servicers….

“Many hotels are unable to pay operating costs and thus debt service,” wrote AHLA President Chip Rogers and AAHOA President Cecil Staton in their letter to the U.S. Treasury, Federal Reserve and Securities and Exchange Commission. “This will cause a snowball effect of foreclosures followed by lenders taking ownership of severely distressed assets with no ability to operate them.”

“Hotels in the Urban Honolulu area owe more than $2.2 billion in outstanding debt, and those in the Kahului-Wailuku-Lahaina MSA has nearly $750 million in outstanding CMBS debt,” PBN reported, pointing to 17 properties in Honolulu and another 7 on Maui with outstanding CMBS debt exposure.

A March 2, 2020 report by the Kroll bond rating agency also assessed the situation in Hawaii.

“Hawaii is home to 18 lodging properties—$4.33 billioin by allocated loan amount (ALA)—that serve as collateral for 17 loans securitized in 25 CMBS transactions. Additionally, there are 28 retail properties, inclusive of mixed-use assets with a significant retail component, collateralizing 28 loans ($2.95 billion) in 30 securitizations.”

Kroll then examined scenarios what would happen under “stress” where hotels were hit with drops of 15%, 25%, and in the worst case considered, 35% declines in business.

The report found only two properties, the Four Seasons Resort Hualalai and Waikiki Beach Marriott Resort & Spa, would not have the cash flow to cover debt obligations under at least the worst case scenario (a 35% decline). But if the same review were done today, it’s unclear whether its conclusions would be so sanguine.

Back in 2017, data published at Trepp.com, which maintains what it says is the largest commercially available database of securitized mortgages, listed two Hawaii resorts as among the five highest valued properties backed by securitized debt transactions.

The Hilton Hawaiian Village was ranked #2 by Trepp with a value of $2.23 billion.

Overall, the borrower’s fees and leasehold interest in Hilton Hawaiian Village anchors $1.275 billion in CMBS debt that is securitized in the single-asset HILT 2016-HHV deal, along with eight other conduit transactions. The fixed-rate mortgage is split into 16 pari-passu A-notes totaling $696.6 million and five B-notes with a combined balance of $578.4 million that were used for the refinancing of an existing $1.255 billion debt package.

And the Four Seasons Resort Maui at Wailea followed at #5 on Trepp’s list. The resort, with an “as-is” appraised value of $910 million (in 2017), “secures $600 million in debt that consists of a $469 million CMBS loan and two mezzanine notes totaling $131 million,” Trepp reported.

With high occupancy rates, these mega-resorts were projected to have little trouble covering their debt payments. However, with zero occupancy for an extended period, many others could be facing cash flow problems.

I’m less than comfortable making sense of the risks ahead as a result this kind of high financial stress. As they say, however, there be dragons.

Lawsuit claims Hawaiian failed to give refunds for cancelled flights

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A federal lawsuit filed in Honolulu alleges Hawaiian Airlines has failed to comply with legal provisions requiring refunds to customers holding tickets for flights that are cancelled.

The lawsuit was filed on behalf of Nataly Alvarez, a Baldwin Park, California woman, but it also seeks certification as a class action on behalf of “all others similarly situated.”

According to the complaint, Alvarez and her family had tickets on a Hawaiian flight to Maui which was cancelled “due to the coronavirus travel restrictions.”

“Plaintiff requested a refund from Hawaiian, which never came,” the complaint alleges.

According to the complaint, the family had booked a flight to Maui scheduled for April 14, which was cancelled by the airline on March 27.

“On April 2, 2020, Plaintiff attempted to call Hawaiian to request a refund for her flight, but received no response. Plaintiff has spent many hours on the phone since trying to get ahold of Hawaiian, but with the same result each time,” the lawsuit alleges.

The lawsuit points to similar complaints about difficulties in obtaining refunds that were posted on social media sites.

The complaint was filed in Hawaii’s Federal District Court on April 20, 2020 by Honolulu attorney Birney B. Bervar and two attorneys in the Walnut Creek ofice of Bursor & Fisher, a major national law firm specializing in class action cases.

The lawsuit could add to the financial woes of the airline, which this week disclosed it suffered a $144.4 million loss in the first three months of 2020.

The complaint cites a U.S. Department of Transportation directive dated April 3, 2020, according to which airlines “remain obligated to provide a prompt refund to passengers” if the flights are cancelled, or subject to significant schedule changes “and the passenger chooses not to accept the alternative offered by the carrier.”

“Indeed, the DOT?s Enforcement Notice makes perfectly clear that offering ‘?vouchers or credits for future travel’? is not an adequate or appropriate substitute for airlines? obligations to offer refunds for cancelled flights,” the complaint alleges.

The complaint has not yet been served on the company, according to the federal court’s online data system.

Disagreement over Change.org

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In a blog post last week, veteran award-winning reporter and, until recently, MidWeek columnist, Bob Jones, blasted the online petition platform Change.org for “promoting” a petition titled “Open Hawaii Now,” which demands Gov. Ige immediately open up Hawaii’s economy despite the continuing deadly threat of COVID-19.

Change.org bills itself as a place where people can start public campaigns seeking policy changes by creating a petition, then mobilize supporters to work with decision makers to drive solutions.

Like Facebook and other social media, the Change.org platform can be used to broadcast messages with widely varied political content.

Jones’ post appears on his new blog, The Bob Jones Report. I recommend subscribing, despite occasional disagreements (like this one).

It struck me as odd that Jones seemed as offended by the availability of Change.org’s platform that was used to present “Open Hawaii Now,” as by some of the dubious arguments expressed by the creator of the petition.

Jones also took a poke at Pierre Omidyar, the billionaire founder of eBay turned philanthropist and entrepreneur, for making a $15 million investment in Change.org back in 2013.

It seems to me that Jones’s post missed the mark and gave far too much weight to the “Open Hawaii Now” petition, which as of this morning had drawn just 387 signatures, according results posted at Change.org.

For example, Jones might have mentioned that an earlier petition launched on Change.org two months ago called on Governor Ige to “Lockdown Hawaii Now.” It had drawn 1,173 signatures before Hawaii’s lockdown started and the petition became moot.

And, for some reason, Jones never even identified the originator of the petition, instead simply associating it with Change.org and Omidyar.

The petition was posted by Kit Carver, who lives and works in Kona. Although the petition was started by Carver, Jones doesn’t mention him by name or by reference.

Carver moved to Hawaii in 2008. He was previously the co-owner and operator of My Bar in Kailua Kona, and is now a licensed real estate salesperson, records show. His Facebook page reflects his involvement in real estate sales, and doesn’t express an ideological bent.

I took issue with Jones slant in a comment on his site.

Bob, to be fair, you should be clear. The petition is not by Change.org, which provides a platform to promote petitions on social and political issues by others, This means individuals and groups don’t have to design their own online presence. In that sense, it is like WordPress, which powers your website. You use WordPress to express yourself, and millions of others use it. When you don’t agree with their online comments, you don’t blame WordPress.

You should be explaining to people that they have to evaluate the source of each petition. In this case, the petition was launched by Kit Carver, a small business owner in Kona. Evaluate this sponsor’s qualifications for giving advice counter to that of all public health experts.

In any case, despite occasional disagreements, I highly recommend The Bob Jones Report. You can easily subscribe by providing your email in a form at the bottom of each page.