Hours after Bay Area public health officials ordered residents to stay at home for three weeks, Stephanie Wansek made the difficult decision to shut down the historic Cardinal Hotel in downtown Palo Alto.
The hotel was struggling even before the March 16 announcement, with just a handful of rooms being occupied, said Wansek, the hotel's general manager. The big blow came when Stanford University called off its in-person classes and told students not to return to campus for the spring quarter. What followed was a cascade of cancellations by people who were planning to attend conferences and other events at the university.
"You can see the business was going and there was no understanding of when the new business will come," Wansek told the Weekly. "There's nobody coming to the county right now."
The Cardinal is hardly alone. Like other Bay Area cities, Palo Alto has seen its hotel industry screech to a halt earlier this month, a development that is particularly ominous for a city that has tethered the funding of its infrastructure plan to hotel-tax revenues. Some local hotels, like the Cardinal and the Garden Court and Nobu Hotel (formerly known as The Epiphany), have shut down entirely. Others remain open but have seen their levels of occupancy plummet because of the sudden economic freeze.
John Hutar, CEO of the San Mateo County/Silicon Valley Convention and Visitors Bureau, said the impact of the pandemic has been profound for hotels throughout the region. Normally at this time of the year they have occupancy rates of 80% to 85%. In the past few days, the highest number he has heard was 30% and the most common rate was about 20%.
"I know hotels in the teens and I know some in single digits," Hutar told the Weekly. "I know owners who may have a few hotels that are consolidating. They're saying, 'Why have three staffs working if you can put whatever business you have in one hotel.'"
Hutar said the visitor's bureau has been rapidly changing its message to adapt to shifting directives and new restrictions. With businesses closing down, it shifted its marketing to the region’s parks and open spaces. Once outdoor areas began to see restrictions, the bureau shifted its focus to displaying attractions that the region offers without necessarily encouraging people to visit at this time.
Judy Kleinberg, president of the Palo Alto Chamber of Commerce, said that for those hotels that remain open, occupancy is generally in the single digits. Guests are typically either travelers who can't get home because of new restrictions, people who are getting their homes renovated or relatives of people staying at local hospitals.
Large companies began to cancel conferences earlier this month, launching the downturn of hotel business. Chamber CEO Charlie Weidanz pointed to Google's decision earlier this month to cancel its annual developer conference, which was slated to bring about 5,000 people to the area.
"That was just devastating to many of the hotels," Weidanz said.
Even open hotels have had to reduce staffing. He said he has recently made contact with a hotel that is keeping its operations going with just management staff, he said.
Every hotel has had to adjust its operations in response to the coronavirus crisis. Jim Rebosio, general manager of the Sheraton Hotel in Palo Alto, said the hotel has closed its bar and restaurant and is only doing take-out and room services, consistent with the order from public health officials. The hotel is also working with the city to assist with some emergency services, as well as the hospital, he said.
The Hyatt Centric Hotel in Mountain View is also operating as a place for people in need of shelter and offering grab-and-go options from its restaurant. The hotel has also been offering rooms as temporary workspaces for $49 per day and providing discounted rooms for stranded travelers, students and first responders (the rates for these visitors are now $99 per night).
The long road ahead
The hotel industry is hardly the only business segment feeling the pinch. The shutdown has left local retail and restaurant industries reeling, prompting many stores and restaurants in Palo Alto's primary commercial districts to shut down. Some, including Zareen's, Subway, Mediterranean Wraps and Izzy's Brooklyn Bagels, remained open on California Avenue as of late last week but limited their operations to to-go orders, consistent with the March 16 directive from public health officials.
During the normally bustling lunch hour, only a few people could be seen strolling on California Avenue, with most employees now staying at home and working remotely.
Given the economic shutdown and the climate of uncertainty about its duration, business leaders are bracing for the worst. Kleinberg said she expects the recovery to take longer than a year and to be more difficult than the last recession in 2008.
The fact that the current crisis presents a "physical danger," in addition to the financial danger, completely changes the dynamics in the business community and makes the situation very different from how it was 12 years ago, Kleinberg said.
"This is an economic crisis. It is a recession and it may turn into a Great Recession," Kleinberg said.
She predicted that even after the shelter-at-home order is lifted, business will not go back to normal for a while. Some businesses simply won’t reopen, she said.
"I just heard today of a business on University Avenue whose corporate office is suggesting that they won’t reopen. Some of the smaller businesses will probably not reopen," Kleinberg said. "They won't be able to survive, either because they are in shutdown or because staff goes away and they don’t have enough staff to reopen. And because rents are so high in Palo Alto, they may reopen but just not in Palo Alto."
But while major hotels are more likely than mom-and-pop shops to open again, the plunge in occupancy rates can have a far bigger impact on the city's bottom line. Before the virus hit, the city was projecting to see $27.2 million in transient-occupancy taxes in fiscal year 2020 (which ends on June 30), 6% higher than the prior year. Those numbers, however, were based on expected occupancy rates of about 80% and an average room rate of about $280 per day, among the highest in the region.
The prosperity of local hotels is also critical to Palo Alto's infrastructure plans. In both 2014 and 2018, voters approved increases to the local hotel-tax rate, with the understanding that the money would be used to fund infrastructure projects such as new garages and fire stations, a bike bridge over U.S. Highway 101, and a new public-safety building. Because of those votes, Palo Alto now has the highest hotel-tax rate in the region, at 15.5%, as well as a heavy reliance on hotel-tax revenues to pay for long-awaited projects. Some of these, including the bike bridge and the police building, were set to enter the construction phase in the next year.
While Palo Alto officials are still trying to gauge the impact of the pandemic on the city's revenues and its infrastructure plans, City Manager Ed Shikada pointed to information about hotel occupancy and acknowledged that revenue declines "will be severe." To prepare, the city has already implemented a hiring freeze.
The city's ongoing expenses, he told the council on March 16, will need to be "monitored very closely and in all likelihood cut back in recognition of the severe economic impact of this event."
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Find comprehensive coverage on the Midpeninsula's response to the new coronavirus by Palo Alto Online, the Mountain View Voice and the Almanac here.