Hersha Hospitality Trust plans to return money it was awarded under the federal Paycheck Protection Program, joining a growing list of publicly traded companies that are canceling applications for forgivable loans under the program that was designed for small businesses.
Hersha, whose 48 hotels include the Rittenhouse Hotel in its home base of Philadelphia, will not collect on funding it has been allocated from the $659 billion loan program and will withdraw applications for all pending awards, chief executive officer Jay H. Shah said Tuesday.
The Small Business Administration’s PPP program, which was authorized by the federal coronavirus relief bill signed in late March, allocated $349 billion in forgivable loans for firms with fewer than 500 workers to pay their employees during the health crisis. An additional $310 billion was made available to small businesses starting Monday.
But many smaller businesses have struggled to borrow from the program, while larger companies have used loopholes in the law to collect hundreds of millions of dollars of the forgivable debt.
Revised federal guidelines released Tuesday discourage publicly traded companies from tapping the program, because they can raise operating funds through other means. The new federal stance pressures such companies to return loans they have been granted so others can use the cash.
Hersha decided to opt out of PPP because of those new guidelines and company leaders’ growing understanding that needier companies were getting shut out of the program, Shah said.
“We’re finding that the guidance continues to become more strongly opposed to anybody but a small Main Street business receiving the loan,” he said. “The program was underfunded.”
Other large stock-exchange-listed companies to return their PPP loans include Ruth’s Hospitality Group — owner of Ruth’s Chris Steak House — and the Shake Shack Inc. burger chain. Locally, Yardley-based pharmaceutical company Optinose Inc. said it would return a $4.4 million award that it had collected.
Philadelphia-based mall landlord Pennsylvania Real Estate Investment Trust, co-owner of the former Gallery at Market East in Center City, said early this month that it will seek funding from the program, but it has not provided updates on its participation. A PREIT spokesperson did not respond to a message Wednesday.
The Dallas-based owner of the Notary Hotel near City Hall and an affiliated company — which employ 7,000 at 117 hotels — were awarded $59 million in PPP loans, the Wall Street Journal reported on April 22. That made Notary-owner Braemar Hotels & Resorts Inc. and Ashford Hospitality Trust the biggest recipients of funding from the program as of that date, according to the Journal.
Those awards make up a portion of the $126 million that Braemar and Ashford are seeking through the program, according to an online statement provided in response to a request for comment. The companies expect to “only minimally qualify” to have their loans completely forgiven, so a portion will be repaid when due in two years, they said.
“Without the PPP program, no other programs exist to help larger hotel-ownership companies survive the crisis and bring their employees back to work,” the companies said. “We believe it is just as important to bring employees back to work at larger companies like [Braemar and Ashford ] as it is at smaller companies.”
Hersha, which owns hotels in Boston, New York City, and other U.S. cities, as well as in Philadelphia, said this month that it planned to use PPP funding as one tool to mitigate the pandemic’s impact on its business. Another tool was a $100 million increase in its credit line.
The company has also laid off or furloughed about 4,500 of the roughly 6,000 workers across its properties.
Because each property is organized as a separate legal entity with fewer than 500 employees, all were seen as qualifying for the lending program at the time of Hersha’s application.
Shah declined to say how much Hersha sought from the program or how much it had been granted, but he said its awards were “higher than the average.” The SBA has reported an average loan size of $206,000, which could have equated to about $9.9 million in loans across Hersha’s 48 properties if it had kept the funding.
Although Hersha’s board thought the company could still qualify for the program under the new guidelines, “it’s just not who we are,” Shah said. “We wouldn’t be in the fray here, trying to muscle our neighbor out of getting relief, if they have no other source.”