Down but Not Out: Leisure Drives the Emerging Hotel Industry Recovery


  • » While the effects of the COVID-19 pandemic on the hotel and hospitality industry were vast, they were also swift.
  • » Entering the second half of 2021, the ongoing hotel industry recovery has provided a solid foundation for growth. Return and recovery timelines vary based upon location and product type.
  • » With hotels reopening, the U.S. hospitality industry experienced a much-needed surge in travel from the leisure sector, which is expected to continue for the foreseeable future.
  • » However, big-box group hotels continue to struggle as corporate and group events pushed demand for that segment into 2022 and 2023.
  • » The disruption of the pandemic allowed best-in-class operators to implement capital and operational improvements during periods of low occupancy.
  • » Lack of substantial distressed transactions despite near-zero occupancy during mid-2020 illustrates the speed of the COVID-19 shock and generally prudent capital approach.
  • » The rollout of the vaccines, traveler sentiment and pent-up demand are the most vital driving factors for the hotel and hospitality sector’s recovery. Industry leaders must continue to stay proactive and connected as they continue to bring the hotel sector back to life.

Enter email address below to have the full report delivered to your inbox.

When compared to other sectors, operations across the hotel industry suffered significantly due to COVID-19. Although the effects were severe, segments of the industry have rebounded quickly due to pent-up demand for leisure travel that emerged with Spring Break 2021 as travelers gravitated towards resort destinations. By mid-2021 leisure travel has already surpassed 2019 levels in specific destinations, while the return of corporate and group travel is not expected to witness a meaningful rebound until 2022 as events continue to be rescheduled and/or occur with attendance caps.

While trailing operating metrics remain abysmal, forward forecasts range from modest to downright rosy, when looking at big-box hotels to well-located leisure properties, respectively. As of July 2021, lodging REIT valuations are approximately in-line with pre-COVID-19 levels, indicating the hospitality industry is comfortable with the overall health of the sector and the ability to recover completely.

When looking at the key performance indicators, it is clear the U.S. hotel market suffered massively through the COVID-19 pandemic. The devastating effects of COVID-19 can be seen through the decline in bookings, lack of travel and hotel closures (both temporary and permanent). Although the travel industry is no stranger to hardship, when analyzing the shock inflicted by COVID-19 compared to prior demand shocks, there is no comparison. The most significant monthly RevPAR decline during COVID-19 was 79.9% in April 20201. For perspective, the largest monthly RevPAR declines during 9/11 and The Great Financial Crisis were in the low 20% range, revealing declines following COVID-19 more than three times greater.

At the outset of the COVID-19 shock, HVS forecasted that ADR would take up to four years to recover to 2019 levels as a lower rate was assumed to be used to stimulate demand.2 Starting in late 1Q 2021, the U.S. hotel and hospitality industry experienced a much-needed surge in travel from the leisure sector in vacation destination markets, which is expected to continue for the foreseeable future. As a result, ADR has been in line with 2019, and in some cases higher than 2019, for a collection of hotels that Bellwether Asset Management oversees. Looking forward, by the end of 2022, we expect leisure hotels in vacation destination markets to have largely surpassed pre-COVID performance. However, due to the continued re-scheduling of corporate events into 2022 and 2023 and reduced capacity when such events have occurred in 2021, we expect that corporate demand will lag through 2021, and big-box group hotels are expected to take longer to fully recover to pre-COVID levels by the end of 2023.

Fig. 1 – U.S Hotel Occupancy and ADR

Fig. 2 – RevPAR Declines

Despite the unprecedented COVID-19 demand shock, best-in-class hotel owners and operators used the crisis strategically as an opportunity to accelerate capital projects and to adjust stabilized operating budgets. One example of operating efficiency has been to further normalize the reduced frequency of housekeeping services that started during the pandemic with guests preferring to have rooms cleaned less frequently to limit the number of people in their room. Not only does this reduce operating expenses, but also provides positive environmental impacts for ESG scorecards. Furthermore, with employment still down 2.2 million jobs below its February 2020 level, hotel owners and operators have been able to evaluate and reset their go-forward staffing requirements coming out of the crisis.3

Distress also became a significant theme during the height of the COVID-19 pandemic as topline revenue plunged. Operators were forced to find means other than operating income to cover fixed costs and make mortgage payments. According to Trepp, the lodging loan delinquency rate reached a record high of 24.3% in June 2020 and could have continued to increase; however, lenders, servicers, equity investors and operators generally elected to work together to bridge the pandemic shock, and accordingly delinquencies have declined every month since.

This unprecedented cooperation was due to a variety of factors, including: (i) the nature and speed of the pandemic shock, (ii) sound fundamentals, including a prudent capital approach entering the pandemic, and (iii) cap rate compression enabling assets to hold value. With this foundation, capital providers and operators worked together through the release of reserves, approval of reasonable forbearance requests, modest additional capital advances and other collaborative workout structures. We continue to monitor the industry for additional distress; however, any distress going forward is expected to be within narrow segments (e.g., big box, group hotels) or due to idiosyncratic problems for specific properties rather than industry wide.

Fig. 3 – Month-Over-Month Loan Deliquency Rates by Major Property Type

Emerging trends reveal differences in recovery speed for not only different product types, but locations as well. Travelers are taking advantage of the outdoor amenities the resort-style properties have to offer with destination properties in cities like Los Cabos and Cancun reserved at full occupancy.4 Popular leisure destinations like Las Vegas and Orlando as well as the smaller, less-dense drive-to markets continue to benefit from the pent-up vacation demand and positive consumer sentiment driving the hospitality recovery of 2021. Additionally, vacationers looking to escape after almost two years of lockdown are enjoying areas like Hawaii and Mexico as occupancy continues to increase during the summer months.

In fact, Hawaii’s demand has been so robust that officials in Maui are working to implement a new tax surcharge on tourists. This new law will allow counties to collect a 3% tax from visitors staying at hotels and other short-term rentals on top of the current 10% hotel tax. Along with the new surcharge, the state also passed a bill that changes how Hawaii allocates tax revenue to the different counties based on tourists per capita. Pressure from the locals had officials moving quickly on implanting this new system as islands like Maui have become overrun with tourists without seeing the proper increases in revenue. Hopefully with this new tax, both local communities and Hawaii’s economy can benefit from the healthy increase in travel. Although markets like Hawaii are benefiting from the increases in tourism, other markets are struggling to gain the same visitor momentum.

In contrast, gateway markets with a heavy reliance on business and group travel are experiencing some of the most significant declines in RevPAR in modern history, according to PWC. New York’s lodging market has been hit particularly hard, with 20% of the state’s total hotel supply potentially closing permanently.5 Within Manhattan, luxury and upper-scale tiers were disproportionately impacted given their high operating cost structures, with room closures during COVID-19 at 76% and 70%, respectively.6 Given 2021’s rescheduling of group events into 2022 and 2023 and the conservative outlook on corporate travel, big-box hotels dependent on group business are not forecast to start recovering until 2022.

The rollout of the vaccines, traveler sentiment and pent-up demand are the most vital factors driving the hotel and lodging sector’s recovery from the COVID-19 pandemic. Hoteliers have identified the importance of mass vaccine distribution and are taking steps to help lead vaccination efforts. To accelerate the industry’s recovery, AHLA urged public officials to use hotels for vaccine distribution. In January 2021, the association issued a letter to the Biden-Harris transition team, offering to mobilize its network of more than 50,000 properties across the U.S. for vaccination sites.7 With over 154 million or 57% of Americans fully vaccinated as of June 2021, travel plans continue to increase.8

As vaccination efforts continue, there is a positive correlation between consumer sentiment and comfort towards traveling. According to the U.S. Travel Association, more than three-quarters or 77% of American travelers plan to travel this summer. In addition to being vaccinated, the most significant influence driving Americans to travel is pent-up demand. As of June 2021, CoStar shows demand at 90% or more of 2019 levels thanks to leisure travel and many travelers also find themselves with travel vouchers from trips canceled due to the pandemic. It was estimated that by the end of 2020, U.S. travelers alone were holding $10 billion in outstanding flight vouchers.9 Because airlines were providing travel vouchers instead of cash refunds, travelers are forced to either leave money on the table or use the vouchers and travel – which should produce a positive demand driver for the lodging industry.

The reopening of the economy is leading to the rescheduling of corporate events. Events planned for 2020 and pushed into 2021 are slowly beginning to occur (albeit with tentative first steps, limited capacity), while other events get pushed into 2022 and 2023. Properties designed to attract corporate events tracked by Bellwether Asset Management have seen a mixture of events going off as planned in 2021, with others pushed into 2022 and 2023. Accordingly, event planners are already finding it more challenging to schedule in 2022 as the pushed-out corporate bookings compete with the annual events already on the books.

The big question for many hoteliers is when corporate demand will come back. Factors influencing corporate travel decisions signal a continuing conservative outlook on business travel. Several travel managers at companies interviewed by McKinsey suggested that as of September 2020, travel spending by many large global companies is at 5% to 10% of spending during the same time in 2019, with many companies still banning business travel altogether. As companies begin to adjust their policies, factors such as proximity to destination, the reason for the trip and the industry sector will play a significant role in overall business travel recovery. According to Walker & Dunlop, sentiments regarding the vaccine are also a primary factor in resuming in-person meetings, with 60% of meeting planners only feeling safe doing so after all parties have been vaccinated as of January 2021.
A subsequent question is how companies operate moving forward (in person vs. virtual). Conventions and other large group gatherings have begun in 2021, though many with capacity limits. An even greater number of group events for 2021 have been rescheduled for 2022 and 2023, which could be a hindrance for those looking to schedule new events on short notice in 2022 with no date flexibility. Once business travel returns, it is anticipated that travel deemed nonessential will be substituted at least in part with virtual or hybrid models as a corporate cost saving measure. Moving forward, a new equilibrium between in person and virtual aspects of conventions, group events and normal business travel will need to be figured out through trial and error measuring a myriad of efficacy and cost variables. However, as this new hybrid model evolves, we are confident that in the long-term, in-person will be the preferred method for conventions and group events as well as for those in business development roles.

Another obstacle to monitor is the evolution of COVID-19 as it now appears to be an endemic virus. Recent news of the Delta variant indicates it may be twice as transmissible as the original coronavirus, and its potential to infect vaccinated people has alarmed public health officials.10 There is little known about future variants and the human response. The lodging industry could see major new setbacks if new variants limit travel as we saw in 2020. Given the initial successes of the current vaccines and what the scientific community believes to be an ability to adjust current vaccines to combat future variants, we remain optimistic that the robust increase in travel will continue.

Looking forward, we expect leisure hotels in vacation destination markets to continue to surpass pre-COVID 2019 performance significantly. In comparison, however, we expect it to take longer for large box group hotels to achieve full recovery to pre-COVID 2019 levels. The hotel industry is strong and resilient, as illustrated by the recovery in leisure travel earlier this year. Human nature craves interaction, and after a year and a half of being stifled, the pent-up demand is real.

Recovery will come but will occur in waves, depending on segment and geography. Travel demand will look different as the leisure and group segments take two separate paths toward recovery. The vaccine rollout is a critical component in restoring travel sentiment as industry leaders stay proactive and connected as they bring the hotel sector back to life. Innovation is essential as consumer preferences continue to evolve, emphasizing continued health and hygiene measures to ensure safe experiences for all travelers, which in turn provides opportunity for best-in-class hoteliers to evaluate and implement measures that meet evolving consumer demand.

COVID-19 has brought the crucial role travel plays in both the global economy and our personal lives to the surface. While the COVID-19 pandemic created a truly abysmal year of distress in hotel operations, pent-up demand for the leisure travel sector kicked-off the hotel recovery and has provided a foundation for growth. As with each prior recession, the industry has learned new and better ways to operate and will be stronger as a result. Fundamentally, humans not only want to see each other again, we long to get back out into the world – and “Zooming” is no substitute.


1 STR, U.S. Hotel Performance, April 2020

2 HVS, “COVID-19s Impact on the Los Angeles Hotel Market”, April 2021

3 U.S. Bureau of Labor Statistics, All employees, accommodation, seasonally adjusted, July 2021

4 Fortune, “Luxury Resorts in Mexico Prepare for a Rush on Travelers this Spring and Summer”, April 2021

5 Wall Street Journal, “As New York Reopens, Many of its Hotel Rooms Look Closed for Good”, June 2020

6 PWC, U.S. Hospitality Directions, May 2021

7 The New York Times, ” As Delta Variant Surges, Outbreaks Return in Many Parts of the World”, July 2021

8 U.S. Centers for Disease Control and Prevention, June 2021 9 PWC, Remote Work Survey, January 2021

9 Reuters, “U.S. Airlines Sitting on $10 Billion Owed to Consumers for Canceled Flights, Lawmakers Say”, April 2020

10 NorthStar Meetings Group, “The Latest on Hotel Reopenings and Closings Due to COVID-19”, April 2021

Dennis Grzeskowiak


Mr. Grzeskowiak co-founded Bellwether in 2013 and has 20 years of experience in asset management and special servicing. At Bellwether, Mr. Grzeskowiak focuses on portfolio management and technology initiatives, with particular asset management expertise in debt as well as multifamily equity investments totaling over 33k units. Prior to forming Bellwether, he was Vice President of Asset Management at Trimont Real Estate Advisors, where he was responsible for a $2bn portfolio of performing and non-performing commercial real estate investments related to multiple property types throughout the United States. During his time at Trimont, Mr. Grzeskowiak developed a proprietary valuation cash flow model used to analyze over $30bn of debt and equity investments. Mr. Grzeskowiak has a B.A. in Economics and International Studies from Rhodes College.

Joe Mossotti


Mr. Mossotti co-founded Bellwether in 2013 and currently focuses on residential, corporate, development and hotel investments throughout the United States. Prior to founding Bellwether, he worked in the Asset Management / Portfolio Management group at JER Partners, a Washington D.C. based private equity firm. At JER, he was responsible for investment- and fund- level modeling as well as the disposition and workout of the remaining portfolio. Before joining JER, Mr. Mossotti worked at Billy Casper Golf Management. Mr. Mossotti holds a B.S. in Finance from Siena College, and is a licensed CPA.

Mitch Magoshi

Managing Director, Construction

Mr. Magoshi joined Bellwether Asset Management in 2018 after 15 years of experience in the construction industry. Prior to joining Bellwether, he most recently worked as a senior consultant with Gardiner & Theobald, Inc., an international construction project and cost management firm. Before joining G&T, Mr. Magoshi was a Construction Manager and Partner at Plant Construction Company, L.P., a leading general contractor in the San Francisco Bay Area. At Plant, he was involved in all aspects of the construction process from business development and preconstruction to project management and site supervision. Mr. Magoshi holds a B.S. degree in Business Administration with a minor in Architecture from Carnegie Mellon University.

Omar Vargas

Senior Vice President, Controller

Mr. Vargas joined Bellwether Asset Management, Inc. in 2018 and has over 15 years of professional experience. Prior to joining Bellwether, he was the Corporate Controller at Landmark Dividend LLC, a Los Angeles based real estate company. At Landmark Dividend, he was responsible for all aspects of the accounting, financial reporting, and asset management functions. Before joining Landmark Dividend, Mr. Vargas was an Audit Senior Manager at Deloitte, where he was responsible for overseeing various teams on real estate advisory services. Mr. Vargas holds a B.S. in Accounting from California State University, Long Beach, and is a licensed CPA.

Carolyn Leslie

Managing Director, Equity

Ms. Leslie joined Bellwether in August 2020 and is primarily responsible for the asset management of west coast office investments.  She has twenty years of commercial real estate investment experience, most recently as the Director of Asset Management at Atlas Capital Group, a New York based owner and developer, and oversaw the redevelopment of ROW DTLA.  Before joining Atlas Capital Group, she was at Watt Companies as a Senior Asset Manager responsible for an office, retail and multifamily portfolio.  Ms. Leslie has a B.A in economics from Vanderbilt University and an M.B.A from Pepperdine University’s Graziadio Business School.

Patrick Foley


Mr. Foley joined Bellwether in 2014 and is currently responsible for coverage of corporate, development and residential investments in the United States. Prior to joining Bellwether, he was an associate at Cross Properties, a Philadelphia based multifamily developer. Mr. Foley has a B.S. in Economics with a concentration in Finance from the Wharton School at the University of Pennsylvania.

Benjamin Easton

Managing Director, Equity

Mr. Easton joined Bellwether in April 2014, after having spent two years at NMS Properties, a Los Angeles based multifamily company. Prior experience includes two years at Mesa West Capital, a Los Angeles based commercial real estate finance company. Mr. Easton began his career in Los Angeles working in brokerage in 2007. He holds a B.A. degree in International Business from Loyola Marymount University.

David Chalison


Mr. Chalison joined Bellwether in 2016 and is responsible for supporting portfolio management functions for Bellwether’s institutional clients. Prior to joining Bellwether, he was Director of FP&A at Chronos Solutions, a Texas-based mortgage service company. Mr. Chalison received a B.S. in Finance from Santa Clara University and holds an M.B.A. from Loyola Marymount University.

Chris Carlson

Senior Vice President, Structured Finance

Mr. Carlson joined Bellwether Asset Management in July 2014 and is currently a Senior Vice President responsible for the performing residential whole loan strategy. He has fourteen years of experience in structured products and the secondary mortgage market. Prior to joining Bellwether, he was a risk analyst with Western Asset Management, where he was responsible for analytics on a $50bn portfolio of whole loans, structured mortgage products and private corporate investments. Mr. Carlson began his career as a member of the Fannie Mae Analyst program in 2005. He has an M.B.A. from UCLA Anderson and a B.A. in Economics and Philosophy from Washington & Lee University.

Michael Baracco


Mr. Baracco has been a part of Bellwether since its inception and is currently responsible for asset management coverage of office and hotel investments. Prior to joining Bellwether, he was a Senior Project Engineer at Lockheed Martin Corp. where he supported and ensured successful execution of multi-billion dollar contracts including satellites, flight modernization systems, and submarines. Mr. Baracco has an M.B.A. from the University of Denver and a B.S. in Physics from Washington & Lee University.