Leaders of Harrisburg-based hotelier Hersha Hospitality Trust still believe they have a great argument when it comes to getting federal Paycheck Protection Program loans for each of the company’s 48 hotels.
As Chief Executive Officer Jay Shah said in an interview this week: “I don’t know how one can say that the room attendant that works for a publicly-traded company is in some way less eligible to receive Paycheck Protection proceeds than a server at a privately-owned corner restaurant.”
But directives from the Trump Administration have changed and publicly-traded firms, such as Hersha, now are being pushed to withdraw from the program. Given that, and in the wake of some attention-grabbing stories about the many small businesses that were left empty-handed after the money initially allotted to the program ran out, Shah said the company has decided to walk away from the help.
Shah declined to say how many of the firm’s hotels had received loans, or the total amount awarded thus far. But he did say that each property had applied for between $250,000 and $500,000 to cover their respective payrolls for 10 weeks.
Hersha will repay the money already awarded, and withdraw any applications that are still pending, Shah told PennLive. This is even as the industry’s major trade association, the American Hotel & Lodging Association, is pushing Congressional leaders for changes to the program to make it more useful for hotel and motel owners generally.
“It’s the right thing to do when we’re in such a pervasive economic crisis,” Shah said, adding, “I don’t know if you’ve followed our company, but we’re fairly principled. We’re a very values-driven company, so it just wouldn’t be us to be the ones to be taking money out of our neighbors’ pockets.”
The firm’s roots trace back to a decision by Hasu and Hersha Shah, Jay’s parents, in the late 1970s to buy and operate an 11-room motel in Middletown. The Shahs have since become leaders in the national lodging industry and have earned a reputation in the midstate as pillars of philanthropy and good works.
But their firm was among those called out as the villains last week as stories surfaced about the number of large, publicly-traded firms poised to benefit from the federal program while many smaller firms and non-profits were locked out.
The initial $349 billion allotted to the program — designed to help small employers retain or recall workers during coronavirus pandemic-related closures — was allocated in a matter of days.
Most of the money went to the smaller enterprises with 500 or less employees that the program’s crafters most intended to help. SBA statistics from the first round of borrowing show that more than 95 percent of all loans approved were for amounts of $1 million or less. Applications are being taken now for a second round of funding that was approved by Congress and President Donald Trump last week.
But a small percentage of the very largest loans drew attention because they went to nationally-known restaurant chains – deemed able to apply because each of their physical sites employed fewer than 500 – or businesses that might have been simply taking advantage of a chance to get a cheap infusion of cash.
An investigation by The Wall Street Journal found that more than 200 publicly traded companies — some of which were facing financial trouble before the pandemic — got about $800 million-plus in the emergency government loans. Some 55 of those publicly-traded businesses reported more than $100 million in annual revenue for their most recent fiscal year, the Journal said.
One the firms flagged by the national press was Hersha Hospitality Trust, which now operates hotels in major cities and resorts on both the east and west coasts under a variety of flags.
The company, which trades as HT on the New York Stock Exchange, announced April 6 it would apply for loans for each of its 48 hotel properties through limited liability companies tied to each one.
Hersha was acting on the premise that each hotel is a small business that is part of one of the sectors hardest hit by the coronavirus pandemic, which has brought business and leisure travel to a screeching halt.
More than 70 percent of hotel employees have been laid off in the last two months, according to estimates by the American Hotel and Lodging Association. Hersha, Jay Shah said, has already shuttered 19 of its properties — including two of its three hotels in Philadelphia — and is operating the rest with skeleton crews. Across the corporation, more than 80 percent of staff has been laid off.
They weren’t, Shah says, cheating.
While the Paycheck Protection Program was generally written to consider all subsidiary parts of a company as one unit with regard to the maximum employee count, the law also carved out specific exceptions for component pieces of hotel and restaurant companies — in part because they were so hard hit by the business closures.
Approved businesses can borrow up to two-and-a-half times their average monthly payroll — including wages, tips, health insurance coverage and employer-paid taxes — over the last year.
Up to 100% of the principal amount and any accrued interest of the loan can be forgiven if the borrower meets certain conditions, including maintaining the same number of employees as before the pandemic, and paying them at the same rate for up to eight weeks. In addition, no more than 25% of the forgiven loan amount can be for non-payroll costs like mortgage, rent or utility payments.
Jay Shah said Hersha’s intent was to use the federal aid to meet payroll expenses. The company has said publicly it has received a $100 million extension on an existing line of credit to help cover most other operational costs through the rest of this year, and will pursue other options, such as insurance coverage for catastrophic business losses.
So, to Shah, appying for funding through the Paycheck Protection Program was a good business move that would help thousands of workers.
Not everyone saw it that way.
Jared Bernstein, a fellow at the left-leaning Center for Budget and Policy Priorities and a former Obama Administration economic advisor, told The Daily Beast that Hersha’s public status gives it an ability to raise money, not to mention its credit lines with banks. “So, not exactly the mom and pop shop that some may envision regarding the PPP,” he said.
Last week, when Treasury Secretary Stephen Mnuchin responded to the attention given large borrowers by using his bully pulpit to call for publicly-traded firms to drop out of the program, Shah said he and his leadership team began their own soul-searching.
Under new Treasury guidance issued April 23, PPP borrowers were required to certify that they absolutely need the loans to keep operating, adding “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith.”
On Tuesday, Mnuchin went further, announcing the Trump Administration would audit any company that received more than $2 million.
“This was a program designed for small businesses. It was not a program that was designed for public companies if they had liquidity,” he told CNBC, adding that companies that made false certifications under the program could face criminal liability.
National hotel industry leaders argue that the criticisms are largely misdirected as applied to the hotel business, which was hit earlier and harder by the pandemic than just about any other sector and thus far has not received other industry specific earmarks like the commercial airlines or cruise travel industries. “It’s really unfortunate because the only people getting hurt here are the employees of those companies,” said Chip Rogers, CEO of the hotel and lodging association.
Without money from the program — at least $12 million when layered across the company — Hersha will likely be slower to reopen its closed properties and call back furloughed staff, he said.
“We’ll just have to have a much more considered approach, because it’s unclear when demand actually will re-emerge in our sector,” Jay Shah said.
But Hersha’s team has decided that it wants to be absolutely clear that it’s on the right side of still-changing federal rules. Just as importantly, he said, they want to do what seems right.
“We’re all businesses, and everybody is suffering,” Jay Shah said. “I mean, this is not a walk in the park for one because they’re publicly-traded and not for another because they’re not. This (downturn) is very pervasive, and it’s extremely serious, and there is a lot of uncertainty out there.
“But like I said, that still doesn’t mean that you don’t do the right thing… To see small businesses locked out from what might be their only opportunity to have a shot at survival, you have to be thoughtful about those things, and we certainly are.”