Implications of the New CARES Act for Hotel Management Companies

April 6, 2020, By BirchStreet Admin

We’re not lawyers and none of the details below should be construed as legal advice. However, we have kept our finger on the pulse of the hospitality industry in order to help our customers. Specifically, we have tracked the government’s response to the coronavirus pandemic and its impact on the industry. The CARES Act, signed into law on March 27, has specific language around hotels and restaurants that may be helpful to operators. However, the bill is hundreds of pages and many of the finer points are buried. Further, those points are often open to interpretation. Our perspective is that there may be relief for many companies in the hospitality industry, and we would encourage those companies to move quickly to determine their eligibility for benefits.

CONTEXT

The coronavirus pandemic has had an unforeseen and unprecedented impact on the US economy. For the week ending March 21, 3.3 million Americans filed for unemployment benefits. For the week ending March 28, that number was 6.6 million, nearly 10x the previous high in 1982. The hospitality industry has been especially hard-hit. CBRE expects RevPAR to decline 37% in 2020, with a contraction of more than 60% in Q2. The National Restaurant Industry anticipates losing $225 billion due to the COVID-19 crisis. Put simply, our customers will be among some of the hardest hit.

To support the hospitality industry and the economy more broadly, the CARES Act includes programs to support individual businesses. The most interesting – the $349 billion Paycheck Protection Program (or PPP) – may provide cash relief to hotels and restaurants in the form of a favorable loan. High-level details are below:

PPP LOAN OVERVIEW:

The CARES Act amends Section 7(a) of the Small Business Act to add a Paycheck Protection Program. This program provides perhaps the greatest amount of relief to hotels and restaurants. In particular, the PPP provides a loan amount equal to 2.5x the average monthly payments for payroll costs during the one-year period before the date on which the loan is made or $10 million, whichever is less. There are detailed definitions of payroll costs that applicants would need to review.

PPP Loan Terms, Use of Proceeds, and Forgiveness
Eligibility and NAICS Code 72 Exception

Businesses with up to 500 employees are eligible for the program, which on the surface may not help many larger management companies. However, there is an exception for businesses within NAICS designation 72, or the Accommodation and Food Services sector. If there are less than 500 employees per location, each individual location may be eligible for the loan.

Who Can Provide PPP Loans?

You can apply starting April 3 through SBA-approved 7(a) lenders.

Other Options

While the PPP is potentially the most advantageous form of relief, the Payroll Tax Credit and Employee Retention Tax Credit are two other options that might be available to you. These can be used in place of PPP loans and not in addition to them.

Next Steps

As mentioned, BirchStreet is not providing any legal advice. We are simply trying to raise awareness about options that can help hospitality businesses.

That said, we do have two recommendations:

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