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When hotel rates drop, service often follows

Travelers have feasted on tasty deals from hotels desperate to fill rooms all year long. But there could be a catch behind that $56-a-night rate for a three-star property in Chicago.

Facing record revenue declines, more and more hotels can't make mortgage payments and are in foreclosure or headed that way.

For consumers, there's almost no way to know you're booking a stay at a hotel in trouble. Service inevitably suffers when a hotel owner struggles to hold on to each dollar. It might be as inconspicuous as cheaper shampoo or doors shuttered at the restaurant off the lobby.

"If you pay 40 to 60 percent less for the room, you have to assume there are cutbacks," said Joe Brancatelli, a veteran print and online business travel editor. "The question is, can you see them?"

This is a historically bad year for U.S. hotels, says Robert Mandelbaum of PFK Hospitality Research in Atlanta. Room rates and room occupancy plummeted as businesses cut travel and vacationers took shorter trips.

As many as 46 percent of hotel owners will lack the cash flow to pay their monthly mortgages this year, up from 16 percent in 2008, Mandelbaum says.

That doesn't mean those properties will all go into foreclosure or those that do will shut down when lenders file to foreclose.

But whoever operates them — the owner or a court-approved receiver — will likely cut back on services to conserve cash, said Michael Matthews, a retired executive with ultra-lux hotels including Ritz-Carlton and Four Seasons.

The hotel's general manager typically is first to go, he said. Other employees get the jitters and look for work elsewhere. Staff cuts follow.

"The landscaping is no longer kept up to par," Matthews said. "If there used to be two or three bellmen to open the door, now there's one or none. The quality of the food's not as good. The chef might leave and the sous chef is in charge."

Hotels might eliminate early check-in and late check-out if a diminished housekeeping staff can't get to all the rooms in time.

Brands maintain standards for hotels carrying their nameplate but increasingly give struggling owners more time to put in new carpet, flat-screen televisions and other costly upgrades, Mandelbaum said.

But lenders who take over a foreclosed hotel usually don't follow the cost-cutting route, said Mike Marshall, CEO of Marshall Hotels, a third-party hotel operator in Salisbury, Md. They invest in improvements so they sell the property at a decent price.

Some 109 Florida lodging properties were in default on loans or otherwise in danger of foreclosure last month, according to Real Capital Analytics, which follows distressed hotels. That's up from 25 a year earlier.

Swiss bank UBS foreclosed on the Westshore Hotel in Tampa and bought it for just more than $1.6 million in September. Wells Fargo last month filed to foreclose on the Crowne Plaza in Sable Park in east Tampa.

So, what can you do if your vacation value turns out to be a debt-ridden dump? "Go to the front desk and tell them you want a reduction in rate or you're getting out," Matthews said. "They probably need the money."

Steve Huettel can be reached at huettel@sptimes.com or (813) 226-3384.

What might be in store next time …

When hotel owners face budget issues, they might start cutting back on services to save cash. Here are some things you might notice when you show up.

• Restaurant closed

• Below-par landscaping

• Staffing cuts (affect check-in times, housekeeping issues)

• Cheaper toiletries

When hotel rates drop, service often follows 11/10/09 [Last modified: Wednesday, November 11, 2009 7:32am]
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