Impact of pandemic
Local malls, hotels falling behind with payments.
Capital Region hotels and shopping centers are delinquent on more than $460 million in mortgages, in the wake of a pandemic that has crippled travel and the demand for consumer goods.
The figure represents two-thirds of all outstanding debt on retail and lodging properties in the region.
In June, data compiled by industry analyst Trepp, placed the Albany-schenectadytroy
metropolitan area on a list of the top 20 metros in terms of delinquent commercial real estate debt.
The nation’s delinquency rates have improved since then, as many forbearances have been granted, or other deals have been reached between borrowers and lenders.
That’s the case for Terra Stratton, a partner of the Washington Park Group, which owns four hotels in Albany, all of which have commercially backed loans.
“Some of (the lenders) even reached out to us,” Stratton said. “They knew what was happening to us. They don’t want to foreclose. They want to keep us alive.”
But other hotels have not been as lucky. Out of all the loans taken out by hotels in
Albany-troy-schenectady area, half are delinquent, according to Trepp’s data.
The Holiday Inn Express and the Hilton Albany, both in Downtown, and the Springhill Suites in Colonie have loan payment
that are delinquent by 30 days or more. Hotel officials did not return phone calls requesting a comment.
Construction on the Hyatt Place hotel in downtown Albany was suspended three months ago, and still is, due to the pandemic, though they are moving ahead with certain pieces such as National Grid beginning to bring electric services to the hotel, said Melissa Zell, the president and CEO of developer Pioneer Companies.
Convincing partners and lenders has been a challenge, Zell said. “We are trying to put the funding back together.”
“We still feel really good about (the hotel) given its location, given the importance of Albany as a political center, even as the economy comes back. Clearly we have seen (the economy) is going to be driven by both federal and state governments... so I see Albany as being an incredibly important place more than ever before.”
July hotel occupancy in Albany is usually about 70 percent, but this July it was only 34 percent due to the coronavirus pandemic, said Jill Delaney, the president and CEO of Discover Albany.
“We are not a Lake George or a Lake Placid where you have water sports galore,” Delaney said. “It has been a tough year for our destination, and we are expecting it to be that way for a while.” But occupancy rates are improving. On July 20, occupancy rate in Albany was 37.7 percent. About a month later, on Aug. 22, the rate was 56.4 percent, according to data from industry monitor STR. “Basically all rooms are open again. There were some rooms that were closed temporarily in April and May and June, but that has now reversed,” said Jan Freitag, Senior Vice President at Lodging Insights at Hendersonville, Tenn.-based STR. Freitag expects the occupancy rates for the U.S. and the Albany-schenectadytroy area to continue to increase through August, but after Labor Day, he predicts very limited demand from corporate travelers who in normal times might book groups of rooms at a time.
Autumn is a key season for meeting and convention business, the bread-and-butter for hotels, airlines and restaurants. The employees who work in those sectors also have been hard hit by the pandemic. The leisure and hospitality sector, for example, employed 43,100 people in the Capital Region in July 2019. That figure fell to just 26,300 this past July, or nearly 40 percent, according to state Labor Department figures.
And industry officials don’t expect that to change anytime soon. “We expect that to actually be the pattern for the remainder of the year,” Freitag said. “Unfortunately, we don’t really expect group demand to come back until Labor Day of next year.” That is a long time to be making little revenue, and if a hotel can’t reach an agreement with its lender, the property owners might decide to give up. “It is a bit of wait and see period right now,” said Catherine Liu, an associate manager at Trepp. “The lenders and borrowers are waiting out to see what they can do.”
Retail properties, in particular large shopping malls, have faced even more delinquencies than the Capital Region’s hotels. Crossgates Mall, the area’s largest, is delinquent on a loan of $260.7 million, while Colonie Center is delinquent on a loan of $110 million. These two loans comprise roughly 70 percent of AlbanytroySchenectady’s overall delinquent retail balance, according to Trepp’s data.
Public mall spaces remained closed until mid-july, nearly four months after the lockdown began in March. During that time, many retailers with only indoor access from the mall either remained closed or offered curbside pickup of purchases. Some spaces, including movie theaters, haven’t yet reopened. “It’s clearly a challenging time for brick-andmortar retail in general. But we are encouraged to see customer traffic ramping up considerably at Crossgates within the past few weeks as our retail tenant roster continues to diversify and the onsite hotel defies market trends,” Pyramid Management Group, one of the primary owners of the mall, said in a statement.
Colonie Center’s owner, KKR, declined to comment.
Both malls have remained current on property taxes however, although Crossgates is suing the Town of Guilderland in an effort to cut its $282 million assessment to $139 million, a suit previously reported by the Altamont Enterprise and Albany Business Review. Crossgates also is seeking back rent payments from six of its tenants, including the Gap, Old Navy and Banana Republic.
Meanwhile, Crossgates continues to expand with the Capital Region’s first Costco Wholesale outlet planned for the site.
But other retailers may be struggling. Lord & Taylor, an anchor at Crossgates, is in the midst of a liquidation sale after filing for Chapter 11 bankruptcy.
“I think a lot of borrowers and landlords are considering the option of just giving up on the property if this pandemic prolongs for much longer,” Liu said. “That includes a lot of high-profile mall owners and hotel owners. They might just not foresee occupancy recovering anytime soon. They might just be tired of taking money out of the pocket in order to keep the loan current at this point.” Freitag echoed this for hotels:
“In some instances, the owners
are just walking away. They are saying look, I am not willing to fund the mortgages anymore for these properties because I don’t think that it’s financially feasible for me to do so. We will likely see a large amount of trading going on, where ownership changes for closed or open hotels.” The Helping Open Properties Endeavor, or HOPE, Act, a bill introduced by Republican congressmen Van Taylor of Texas and Andy Barr of Kentucky, and Democrat Al Lawson of Florida, aims to provide financial assistance to borrowers with commercial mortgages, including hotel and mall owners.
“What we’re seeing already is a massive number of hotels fall into a delinquency state where they’re unable to pay their mortgage and when that happens, of course, foreclosures will follow and when foreclosure happens, the business is gone and the employees no longer have a job,” said Chip Rogers, CEO of the American Hotel and Lodging Association, and advocate for the bill.
“The entire country is facing this, and no one is exempt, but New York has been specifically hard hit,” Rogers said. “When you look at the impact, which of course the lawmakers in Albany will have to figure out how to deal with ... the financial impact of the hotel and hospitality industry going down is going to impact everybody that lives in New York.”