With hours to go before the Paycheck Protection Program was scheduled to stop accepting applications from businesses seeking federal loans to stay afloat through the COVID-19 pandemic, the U.S. Senate unanimously approved extending the application period until Aug. 8 late on Tuesday night.
The legislation approving the extension will next go to the House of Representatives before moving to the White House for the president’s signature. As the New York Times noted, members of both chambers are expected to leave Washington for the upcoming Fourth of July weekend and are not scheduled to return for two weeks.
The Small Business Administration program has already allocated $520 billion in loans to nearly 5 million businesses nationwide, and a further $130 billion is still available for businesses to use as the shutdown enters its fifth month. “There's been a lot of discussion about how that those resources will be used, and we believe there’s support in Congress for creating an additional program very similar to the Paycheck Protection Program, but focusing on those businesses that have been hurt the worst by the pandemic,” said Chip Rogers, American Hotel & Lodging Association president and CEO, hours before the Senate approved the extension.
When Congress approved the original Coronavirus Aid, Relief, and Economic Security Act—which included the Paycheck Protection Program—in late March, many experts thought the pandemic would last for 10 weeks or so. “There was a lot of discussion, back in March, about whether the economy would completely open up again by Easter,” Rogers recalled. “Obviously, that did not happen.” The PPP’s original policy put a cap on the amount businesses could borrow, limiting the loans to two-and-a-half times a company’s average monthly payroll.
“The program has been successful, but successful on a limited basis,” Rogers said, explaining that the caps on loan availability meant that some companies were not able to access the resources they needed to stay in business as the pandemic continued. Rogers and the AHLA team have talked with hundreds of hoteliers that have received PPP loans since the program launched, and learned that many only received about $150,000 to get through the downturn. “In reality, their need is much greater than that, but they couldn't gain access to any more because the limit was two-and-a-half times your average monthly payroll,” he said.
Still, Rogers acknowledged, the PPP was developed with the best information available at the time, and there was no way to know in March that the pandemic would still be claiming lives in July, and that two-and-a-half months worth of funds would not be enough. His only real criticism of the original program was that there was no qualification for the borrowers. “Even if you had a business that was doing quite well, you could gain access to the PPP funds,” he said. “That is the one change that, in hindsight, they probably should have made—and they still have the opportunity to make it.”
Different Loans, Different Debts
Hoteliers’ financial situations, of course, depend on the sources of their original loans. Traditional banks have been “very, very good to work with” during the crisis, Rogers said, and have even offered some kinds of forbearance on certain payments, even going interest-only for some clients. “We know that’s not going to last,” he acknowledged.
Another type of loan, commercial mortgage-backed securities, are fixed-income investment products backed by commercial mortgages. These loans, Rogers said, are “very dangerous” because of their structure. “Many of [the borrowers] can fall into default, quite easily—and many of them already have fallen into default.” The AHLA, he said, is “constantly working on that particular issue, trying to find some sort of congressional answer.”
As Trepp reported last week, the CMBS market is experiencing “an unprecedented rise in delinquencies,” and the overall delinquency rate across all property types is “lurking very close” to the all-time high of 10.34 percent registered in July 2012.
Still, Rogers noted, CMBS loans only represent between 15 to 20 percent of the industry.
To help keep businesses like hotels afloat as the crisis continues, the AHLA supports a proposal from Sen. Todd Young (R-Ind.) and Sen. Michael Bennet (D-Colo.) that was first announced in May. The Reviving the Economy Sustainably Towards a Recovery in Twenty-twenty (RESTART) Act includes a loan program to support businesses that have been particularly affected by the downturn for the remainder of the year and would provide loan forgiveness “as a backstop against ongoing difficulties.” Specifically, Rogers said the new act would focus on businesses that have lost 50 percent or more of their revenue. “And it would raise the limits to give those companies access to more resources,” he said. “The same forgiveness rules, essentially, would apply—if you spend [the loan] on the right things, then it would turn from a loan into a grant.”
At recent congressional hearings, Rogers added, Secretary of the Treasury Steven Mnuchin responded favorably to the idea of using the leftover resources for a round of PPP funding directed at businesses that have been hurt the most. “I don't believe there's a lot of disagreement on that,” Rogers said.
For right now, many hotels still need access to capital just to make their mortgage payments. “It's really a hotel-by-hotel basis,” Rogers said. “If you're in an area where the drive-to traffic is happening, you can certainly survive another couple months ... Our greatest concern has been what happens to the large urban-center hotels, particularly those around convention centers where you have thousands and thousands of jobs in each one of these hotels. What's going to happen there? And that's a really big concern because the business travel hasn't picked up and the meetings and convention travel is nonexistent. So they're the ones that really need the help right now just to make those mortgage payments.”
Perhaps most importantly, Rogers said, the hospitality industry as a whole must present a united front to secure the government support hoteliers need: “These requests are significant, and if we are unable to get further assistance, there will be a lot of hotels that just won’t make it.” Even hotels that are doing solid business again can be hurt by other hotels that are not, he cautioned. “It's not good for the industry as a whole," he said. "Declines in debt will hurt the value of every hotel. So this unity that we've had up until this point needs to continue.”