The pandemic changed our approach, and the hospitality industry is no exception.
It was three years ago when across the U.S., eight out of ten hotel rooms sat empty due to the pandemic and when stay-in-place orders and travel restrictions resulted in a significant drop in occupancy and revenue. By the end of 2020, annual occupancy averaged just 36%. While occupancy rates continued to rise, the landscape changed with competition from short-term rentals and home-sharing. Some properties have been formally converted into non-traditional uses, including multifamily units and senior or student housing. Still, many properties are entering public/private partnerships to offer space for homeless shelters, juvenile-housing programs, healthcare workers, and emergency shelters, among other uses. With three years of pandemic-related partnerships already experienced, there are some key takeaways for these public/private partnerships to ensure a smooth, positive working experience, particularly when it comes to maintenance and renovation agreements.
Setting an Example
San Francisco was a leader in private/public partnerships with its alternative shelter program. This program provided temporary shelter for people experiencing homelessness. While the city used some trailers, congregate sites, and other options, hotel rooms were also a big part of the program. The city was able to get this program up and running very quickly in April 2020 and stopped accepting new guests the following June. The city ended the program in December 2022 after helping all guests make stable exits. The program did its job as there were minimal COVID-related deaths among any of the program’s guests, and well below San Francisco’s already low rate of COVID.
Across the country, government entities were entering into contracts with hotels for use as healthcare worker housing for those exposed to COVID and travel staff, vulnerable populations, and anyone needing to quarantine.
Lesson One: Maintenance & Agreements
Ongoing maintenance and renovations aren’t traditional when a property is used for a non-traditional purpose. Being aware of potential changes in processes, procedures, and budgeting are crucial to ensuring a smooth, profitable relationship with a public entity. And, while these contracts often come together quickly because of a social service emergency, there are a number of items that could and should be addressed upfront in agreements.
When contracts have to be pulled together quickly, the agreements may not be as robust as usual, so it’s essential to be comfortable with a “pretty-good contract” and one that’s not perfect. Addressing ongoing maintenance and renovations are two big factors that must be part of that contract. But for many of us, understanding how to maintain the hotel while it is being used and managed by a third party is a big question.
Third-party providers are often used to manage the hotels, including food services, ongoing housekeeping, and general management. In many cases, these providers come out of the social service agencies using the property and don’t have traditional hospitality experience. While the social service agencies using the property are committed to the safety and well-being of the clients being served, that experience is enhanced by the ongoing cleaning and maintenance of the property. The upfront agreements must address the ongoing maintenance of the property in terms of traditional hospitality expectations to minimize long-term implications to the building’s infrastructure.
Having an agreement that requires ongoing maintenance is important. As we all know, too often, significant damage and related repair costs can be avoided if the issue is fixed when first detected. Hoteliers are used to infrastructure that allows full-time maintenance staff to fix things as needed and a housekeeping staff that identifies issues by regularly spending time in each guest room. But when a third party controls the property, they lose that ongoing maintenance process. When a third party is running the rooms, the hotel rooms are often used non-traditionally, likely as long-term housing, and those rooms can go weeks or months without a property manager setting foot into some rooms. If a room develops a simple issue like a leaky faucet, with regular checks and maintenance, that faucet can be a simple fix if identified immediately and managed. Without the right staff in place, a leaky faucet could escalate into a major problem, causing water damage and mold issues across many rooms, not just the origination point.
Lesson Two: Costs
In addition to ongoing maintenance, a private/public contract should address the costs related to renovation work at the end of the engagement. It’s important that there is agreement on what is fair and reasonable reimbursement for necessary renovation resulting from normal wear and tear during the partnership. While a typical renovation is new finishes, like carpet, paint, and fixtures, a contract involving a third-party management team needs attention for underlying damage. Time and costs related to surveying and due diligence must be accounted for. While the general renovation costs will be the same as a typical renovation, there may potentially be more work with this contract.
For example, a window air conditioning unit sometimes drips. Still, without regular maintenance, it can cause more damage than usual and might result in replacing an entire wall because of water damage.
There might be extra work and expenses related to odors as well if pets or smoking took place in the building while under other management. There are just a few examples to be considered in contract negotiations, and it reinforces the need for processes to manage repairs and related costs from damages, as negotiating repairs and other items after the fact will be difficult.
Hotel use for social services and emergency services can have positive results for all parties involved as we work to offer support for issues involving homelessness, public health, and natural disasters.
From Los Angeles to New York City and many places in between, there’s a growing trend to use existing real estate to help the community. With the right discussions happening at the beginning of these engagements, public/private partnerships can be smooth, positive working experiences, particularly when it comes to maintenance and renovation work.