The coronavirus – a challenge that also affects the hotel market, which is otherwise spoiled by growth

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Many hoteliers, operators and owners are faced with a previously unknown exceptional situation. In Berlin, for example, where several trade fairs (IHIF/ITB) have now been canceled or postponed

Many hoteliers, operators and owners are faced with a previously unknown exceptional situation. In Berlin, for example, where several trade fairs (IHIF/ITB) have now been canceled or postponed, operators have to contend with hotels that are partly empty. Occupancy rates suddenly drop to 30% (in Milan occupancy rates below the 10% limit are reported), cancellations are accumulating, guests are staying away, F&B outlets are empty and the pick-up is reduced considerably.

Hotel operators are beginning to review contracts and are trying to find ways to reduce the fixed leases that are common in Germany. First talks with owners are held in order to keep the negative development of the financial situation as low as possible or to prevent possible loss of rent.

What approaches are there if the GOP is no longer sufficient to pay the rent?

Timely and open contact between operator and owner/interest-representatives/investors or banks is very important in such a situation, the utilization of the bank guarantee is the last resort.

One possible approach is, for example, a reduction or even temporary suspension of the formation of the FF R&D reserve. If a delta (minus) is nevertheless generated, then this should be compensated by the operator over the next few years, if possible months. The sharp increase in market pressure in recent years – especially in the major cities – has led to calls for high rents. Many hotel operators have chosen a high fixed lease as a sales argument in order to meet the expansion pressure of their hotel brands with new signed contracts and locations. As long as the market is stable and the hotel performs, high rents are serviceable. The situation is then different in unusual and difficult situations. In an open discourse between owner and operator, it is important to consider whether a temporary switch to turnover or even profit leases would not provide better conditions for times of crisis. Operators will look for possibilities to make use of a “force majeure” clause, to take out contingency insurance (often excluding “epidemics”) or after a contract exit for hotel properties with which one is “unhappy” in total. It is still too early to think about making use of any government guarantees, as the programmes are not yet fully developed.