The hospitality sector has been devastated by COVID-19
In yet another sign of COVID-19’s rampant disruption of the U.S. economy, the Trump Corporation on Tuesday is reported to have asked the federal government for rent relief on one of its most iconic hotel properties, Washington D.C.’s Trump International Hotel.
A few months ago, the hotel, where several countries have been accused of renting rooms to curry favor with the administration, was one of the Trump Corporation’s most controversial properties. Now, with its bar, restaurant and spa all shuttered and reservations slowing to a trickle, Trump International Hotel is just another hospitality property struggling to make its nut.
In comments to the New York Times, Eric Trump said the Trump Organization is still current on the $270,000 monthly payment it owes to the U.S. General Services Administration, from which it leases the iconic property. Nevertheless, a request for a rent delay in line with what has been granted the hotel’s other tenants has been made.
“Just treat us the same,” Trump reportedly said in a statement. “Whatever that may be is fine.”
The request is highly controversial. Donald Trump, as owner of the Trump Corporation and leader of the administration that manages the Trump International Hotel, is essentially asking himself for rent relief.
Citizens for Responsibility and Ethics in Washington’s executive director Noah Bookbinder responded to the request in a tweet that read, “The President’s company is asking for a break on its lease payments for its DC hotel because of the pandemic. The request is going to the landlord, which is the Trump Administration. It’s hard to imagine a clearer case of a conflict of interest.”
Walter Shaub, former head of the U.S. Department of Ethics, also weighed in online, tweeting, “Last fall, GSA admitted to lawmakers that it wasn’t bothering to audit submissions from Trump’s hotel that claimed it wasn’t earning enough to trigger an increase in payments to GSA above the minimum. Now, the hotel wants a break on rent from GSA. Will GSA audit this request?”
The bigger picture
It’s not the only Trump property in need of rent relief. Documents from Palm Beach County indicate the Trump Organization was late on a monthly payment of approximately $488,000 on land leased for the Trump International Golf Club.
According to reporting from the Palm Beach Post, neither of the contracts signed between the county and the Trump Organization include force majeure provisions that extend to pandemics. It’s the same grey area many in the hospitality industry are currently mired in.
Pandemics are not considered legitimate triggers for force majeure clauses, but acts of government, such as the mandated shutdown of businesses, can be. This is giving some commercial tenants the impression that their rents may not need to be paid during the COVID-19 crisis. With no new legislation in place to guide commercial tenants, owners and lenders, a wave of withheld rent cheques could spark both an avalanche of lawsuits and a further tightening of liquidity among landlords and lenders at a time when every level of the commercial space has been stretched to the breaking point.
“There’s just so much uncertainty and there’s not a lot of clarity in terms of how this is going to play out,” says one New Jersey-based commercial lender that deals primarily with hotels.
Force majeure rarely applies to hotel properties, where the owners of the property typically own the land they sit on. But as hotels across the country lose more money every day, many of them have been forced to pay out of pocket to cover their operating costs. Those carrying larger loans face steep debt-servicing costs.
“Most of our loans don’t have force majeure language in there, so if the borrower isn’t paying their debt service, the lenders aren’t agreeing to some kind of modification, or the borrower doesn’t pay their debt, they’re going to go into default,” the commercial lender says, but adds that most lenders are working through modifications with their borrowers.
Hospitality properties are highly complex ecosystems, with loan, management, and franchise agreements all adding extra potential for conflict even during the best of times. And if a property contains a restaurant or retail tenants that have been forced to close, the force majeure debate begins again and everyone’s back to where they started: uncertainty. Uncertainty and real estate have never made good dance partners.
Regarding the rent issues Trump International Golf Course is reportedly facing, the commercial lender had little hope to offer the president.
“Properties that are on ground leases are trying to work out relief from their lenders, but also trying to work our relief from their landowners. And most landowners are not willing to give anything.”
