Updated: Delaware hotels, tourism business fight to survive pandemic
REHOBOTH BEACH — The Bellmoor Inn & Spa at Rehoboth Beach lost $200,000 in reservations in just five days after other states placed Delaware on their quarantine lists.
“It was like a light switch,” Bellmoor General Manager Ben Gray said. “We lost 30% of the reservations on the books for the next 90 days. We saw a bounce back when we were taken off the list and then saw an impact when we were put back on the lists.”
Gray said there are some glimmers of hope. The Bellmoor was fully occupied during the weekend of July 24-26 and was 70% booked on July 28 for the Aug. 1-3 weekend. He was also optimistic that he could increase that by 20 percentage points later in the week – as happened the previous week – if the forecast is for good weather.
But these challenges aren’t limited just to the beach.
The news last week that the University of Delaware would move classes online was another blow to nearby hotels.
The question remains whether the next four months will be much better that the last four as Newark hoteliers now expect to lose business on Move-In Weekend, Homecoming, Parents Weekend, and Alumni Weekend. UD represents a large part of these hotels’ business and many were already sold out for Parents Weekend, when thousands of families visit the campus to see their children.
Delaware hotels have generated $65.7 million in room revenue this year, compared with $121.7 million for the first six months of 2019 and $112.5 million in 2018. Statewide occupancy rates were 50.7% in June versus 71.5% for June 2019. Year-to-date hotel occupancies are 41.6% in 2020, compared with 58.3% in 2019.
But even worse, revenue per available room (RevPAR) – a key indicator that multiplies a hotel’s average daily room rate by its occupancy rate – fell 49.7% over 2019 to $39.34 and by 45.6% for June alone.
Besides the impact on revenues to the hotels themselves, the impact on the state operating coffers known as the General Fund, local and state tourism offices, and beach replenishment activities is equally devastating.
Those stays generate an accommodation tax of 8% that is allocated to:
- Delaware General Fund: 5%
- County tourism bureaus receive a prorated share of 1%
- Delaware Tourism Office: 1%
- Beach replenishment: 1%
Through the first half of 2020, hotel accommodation taxes added only $5.26 million to the General Fund, compared with $9.75 million for the same six months in 2019 and $9 million in 2018.
The picture is even worse if you look at the numbers for April through June, when hotels were closed except for business travelers. Only $1.44 million was generated during the second quarter of 2020, compared with just under $6 million in 2019 and $5.6 million in 2018.
For Sarah Willoughby, CEO of the Greater Wilmington Convention & Visitors Bureau, the impact was devastating. In 2019, her organization received $458,000 in the second quarter (April to June). This year, the number was just under $96,000 with hospitality-industry restrictions in full effect.
“We missed our fiscal year budget projections by $240,000 … and we had been having a good year,” she said. “We had to furlough five people and four more of us took pay cuts. But we started invoicing our members again [in July] and we are seeing really great support from all sectors.”
The outlook isn’t any better statewide as companies cut back on corporate travel; other states put Delaware on their quarantine lists, thereby choking off out-of-state vacation visitors; and Gov. John Carney delays moving to Phase 3 and while restoring restrictions on downstate bars.
In addition, Sussex County gave up more revenue in early April when it suspended its 3% county accommodation tax on hotels in unincorporated areas to help ease their financial burden.
“The market has become relatively numb with only four weeks of summer left,” Gray said. “Sellouts for the next four weeks will not save the season.”
Gray, who also chairs Southern Delaware Tourism, pointed to a survey by the Rehoboth Beach Chamber of Commerce released on July 28 that said Sussex County hotels have lost more than $31.5 million in revenue during the first six months of 2020, with 70% of that from Rehoboth Beach hospitals.
“The Bellmoor is still financially viable despite the circumstances,” he said of the downtown Rehoboth hotel that was bought by a New York-based real estate investment firm in February, before the pandemic hit. “I think the seasonal hotels are most at-risk because they only have five to seven months to make their livings. You can actually find a parking spot in downtown Rehoboth on Friday nights and Saturday afternoons and I’ve never seen that. I think the state of Delaware will see some ownership changes [among hotel operators] or some hotels won’t survive the season.”
As Delaware reopened, Southern Delaware Tourism created an additional advertising campaign and communications utilizing alternative grant funding from the University of Delaware Sea Grant Program to help offset the revenue losses from the hotel closures, said Scott Thomas, executive director of the Sussex County tourism office.
“We only have so much time to reinforce traveler sentiment before our high visitation season is over,” he added.
Kent County Tourism President Pete Bradley said his organization only received $42,000 in state accommodation tax revenue during the second quarter, compared with $117,000 a year ago.
“We have made staffing adjustments and other expense adjustments to reflect the impact while still ensuring we can continue to promote our county and partners as we recover,” he said.
Axia Management owns six hotel properties in Delaware – including four in Dover and one each in Middletown and Lewes – and another in Ocean City, Md.
“We survive and rely on NASCAR events, then Firefly was cancelled, and corporate travel – which represented 20% to 25% of our business – is now obsolete,” Axia Vice President Sophia Kramedas-Ghanayem said.
“It’s difficult to plan these days,” she said. “We got a lot of cancellations when other states added us to their quarantine lists. June business was down 60% and we’re down about 40% for July because even though DE Turf jumped back into the mix after doing nothing in June, we’re deeply concerned about their tournaments, particularly if New York and New Jersey teams start canceling.”
Statewide occupancy data shows that everyone bottomed out in March and has seen an uptick since then, but it’s not enough for many businesses.
“We need around 65% to break even and a lot of places haven’t brought back the majority of their staffs,” said Bill Sullivan, a board member of the Delaware Hotel and Lodging Association. “Some were getting loan-payment deferrals; for others the [U.S. Small Business Administration’s] Paycheck Protection Program (PPP) helped, but right now it’s prolonging the inevitable. They have to make cash flow or they can’t pay the bills. And downstate, their window for making money is going to close pretty quickly.”
Sullivan said the situation has put pressure on all parts of his business.
“Cleaning a room is about double [the cost] of what it used to be,” he said of his hotel, the Courtyard by Marriott at the University of Delaware. “We’re doing almost zero banquets. We’re trying to maintain a level of food and beverage services, but we’ve reduced the items on our menus and significantly cut the hours our bar is open. We’ve opened up, but it’s no longer business as usual.”
Kramedas-Ghanayem, of Axia Management, said that like many other hotel operators, Axia applied for and received the PPP loan and an Economic Injury and Disaster Loan (EIDL), as well as a state HELP grant. While all have been helpful, she’s still worried about published reports questioning whether hotels can survive through the challenging fall and winter seasons – the American Hotel and Lodging Association said this month that more than 8,000 U.S. hotels could close in September if business travel does not pick up and funding from the PPP runs out.
“We just have to keep the engine running,” she said. “We’re trying to remain optimistic, but it’s easy to be optimistic when you have no other options.”
By Peter Osborne