Leslie Hale on the Walker Webcast – CRE, the economy, and diversity

On June 24, Walker & Dunlop's CEO, Willy Walker, hosted the Walker Webcast with Leslie Hale, the CEO of RLJ Lodging Trust, and the first African American woman to become CEO of a publicly traded REIT.

Webcast Replay

A few highlights from the discussion include:

  • The outlook on the Hill for rental relief and another stimulus bill 
  • Leslie’s career path from her childhood in LA, to her time at Howard and Harvard Universities, to becoming the CEO of RLG
  • Why Leslie is not a “unicorn,” and her playbook for attracting and retaining a diverse workforce 
  • RLG’s hospitality portfolio performance and the changes that are already in progress to make hotels safe
  • The paradigm shift within the retail industry and the future role of brick-and-mortar stores like Macy’s, where Leslie sits on the board

A bit about each speaker:

Willy Walker
Willy Walker

Willy Walker is Chairman and Chief Executive Officer of Walker & Dunlop. Under Mr. Walker’s leadership, Walker & Dunlop has grown from a small, family-owned business to become one of the largest commercial real estate finance companies in the United States. With a $32B transaction volume in 2019, Walker & Dunlop is ranked top three with Fannie Mae, Freddie Mac, and HUD.

Leslie Hale

Leslie Hale is President and Chief Executive Officer of RLJ Lodging Trust, and serves on the Board of Directors. Prior to August 2018, she served as Chief Financial Officer since 2007, Executive Vice President of Real Estate & Finance since 2013 and Chief Operating Officer since 2016. Ms. Hale is responsible for all financial matters and daily operations across RLJ. She is intricately involved in the company’s investment decision-making and long-term strategic planning. In addition, Ms. Hale oversees the execution of all asset and corporate level transactions, investor relations, and the management of the Company’s Asset Management and Design and Construction functions. Ms. Hale earned a BBA degree with a concentration in Finance from Howard University, graduating summa cum laude. Ms. Hale earned her MBA from Harvard Business School, where she was a Goldman Sachs and Robert F. Toigo Fellow. She currently serves as a member of the Board of Directors of Macy’s, Inc. and as a trustee of Howard University.

If you have any comments or questions about the evolving economic landscape and how it is impacting the CRE space, our experts are available to help. Additionally, if you have topics you would like covered during one of our future Wednesday webcasts, we would be happy to take your suggestions.

Webcast Transcript

WW: Thank you Susan and welcome everyone to another Walker Wednesday Webcast. If it's Wednesday, it's the Walker Webcast. It's wonderful to have Leslie Hale joining me today. Before Leslie and I dive into our conversation, a couple thoughts and comments on the markets and commercial real estate from W&D’s perspective.

As has been the case really since the beginning of the pandemic rent collections have remained very strong in June with collection levels in the NMHC survey that just came out slightly better than May numbers and May was slightly better than April numbers so continuing strong rent collections across the country.

We've seen very little activity with regard to forbearance requests in the W&D portfolio and while Fannie and Freddie’s multifamily forbearances surged somewhat at the beginning of June, up to between $10 and $11 billion on a combined basis, as a percentage of their total debt outstanding that’s still less than one percent which if you compare that to their single family portfolios that are between eight and nine percent there's been a very significant distinction between forbearance requests in their single family portfolios versus their multifamily portfolios.

I think the real question now turns to what happens to rent rolls after the Cares Act runs out at the end of July and how quickly the economy adds jobs back. I was on a call this morning where Jamie Dimon from JP Morgan was talking about unemployment figures between 10 and 13 percent for Q3 and Q4 of this year and while that sounds great in comparison to the 20 plus percent unemployment numbers that we were hearing in May that still means that Q3 and Q4 of 2020 will have more people unemployed in the United States than at the peak of the Great Financial Crisis which was ten percent. So still some very significant issues to get through as it relates to getting the economy back up and going.

I've been on calls with senators, as well as their staffs, for the last two weeks talking about the next stimulus bill that comes out. A couple thoughts there. First is that there will be another piece of legislation. Every senator that I've spoken to said we're going to get something done. It will likely be negotiated and passed in the last week of July which puts a lot of pressure on getting it passed and I think that, quite honestly, Leader McConnell is focused on doing just that, he’s putting a lot of pressure and focus on getting a bill put together in the final week of July and then getting it passed before the Cares Act basically expires at the end of the month.

Inside of that, one of the big questions will be the extension of unemployment benefits that were in the Cares Act and the $600 per week extension. As many people know, the Heroes Act which was passed in the House several weeks ago called for the extension of stepped up unemployment benefits until January of 2021. The White House and Senate Republicans have been pushing back on that extension and many of us in the housing industry are pushing for some extension even if modified in terms of the employment benefits. But with or without unemployment benefits the thing that we're mostly talking about now as well is rental subsidies, some type of rental assistance program in that stimulus bill.

There are today 8.9 million Americans who are renters, who are unemployed. So, making sure that those renters have some type of rental assistance to allow them to stay in their communities, in their homes, is very important. There are two bills right now - one by Senator Brown calling for about $100 billion of aid of rental assistance and another by Senator Reed calling for about $75 billion of rental assistance and housing assistance. So over the next month the real objective is to talk to Senate Republicans and make sure that whatever legislation is passed at the end of July has some type of rental assistance to it.

On the markets Fannie and Freddie and HUD are all still lending actively. Spreads have stayed extremely tight and one of the more encouraging things about spreads has been that the Fed has been in the market trying to buy agency CMBS over the past several weeks and they have not won, which means that there has been private capital coming in to buy those bonds at a tighter price than what the Fed was offering. Spreads remain tight, base rates remain low, and as we have seen at Walker & Dunlop, and many people have seen across the industry, particularly in the multifamily space, many people are refinancing properties today, similarly in the single family industry.

As I said two weeks ago our multifamily investment sales business is starting to transact again. We closed a deal yesterday - it was a $52.5 million sale of a multifamily property from one institutional seller to an institutional buyer. It was a 475-cap rate and that's about a 4 percent discount to where pricing was pre-COVID. It was a 21-day due diligence period and 14 days to close and we financed the acquisition with a Freddie Mac loan at a 75 percent LTV, half term IO, and at a floating interest rate of L+242. Interesting to point out an institutional seller, an institutional buyer, a relatively low cap rate, a very relatively small discount from pricing pre-COVID, and very attractive financing on the buy by the new institutional owner.

On our capital markets business which brokers debt off to all capital sources, we're starting to see transaction volumes on non-multifamily assets but it's still somewhat muted. Our current pipeline is 60 percent multifamily, nine percent mixed use, eight percent retail, 6.5 percent office and 6.5 percent industrial. A couple things to keep in mind there. First, at Walker & Dunlop our capital markets pipeline is always over-weighted towards multifamily so that 60 percent number, we're always big on multi in that pipeline. It's also good though to see those other asset classes constituting between five and ten percent of the pipeline.

You will note that hospitality, as an asset class, wasn't on that list. We are looking at some hospitality deals right now but nothing is in the pipeline as it relates to deals that are going to get done in the foreseeable future. I'm looking forward to talking to Leslie about that point.

And then the final thing on that pipeline would be that life companies and banks in CMBS are not only back quoting on non-multifamily assets, but they're quoting at higher leverage levels than they were previously. In the past, they were giving you a quote at 50 percent LTV but for most refinancing’s that wasn't a commercially viable term. So what we've seen is capital sources step up their leverage levels and start quoting at 60, 65 and 70 percent LTV which is a very welcome sign to the capital markets healing and getting capital to those non-multi assets that need capital.

As we sit here today things look very good. The economic indicators for the restart of the economy continue to surprise to the upside. One concern I've had is consumer finance, and the $1 trillion of credit card debt that's outstanding in the United States today. During that call that I mentioned that I was on with Jamie Dimon this morning, and obviously Chase has a huge credit card portfolio and consumer finance business, things sounded very good. Jamie was talking about the stimulus and the fact that the savings rate, and consumer deposits, have gone up dramatically in the last two months and that's clearly a good sign if people need to tap into savings in the fall before jobs reappear.

The final thing I'd like to touch on before I turn the call over to Leslie and start asking her perspective on everything, is the issues of racial justice that remain in our headlines and must remain in our corporate strategies for many years to come.

W&D has incorporated into our environmental, social and governance or ESG goals very ambitious targets for women and minorities in both management positions as well as the top earning positions at Walker & Dunlop. I'm really pleased to say that over the past week we've been working on tying those goals and targets into long term executive compensation at Walker & Dunlop. Mellody Hobson, the co-CEO of Ariel investments, I think said it best a couple weeks ago on CNBC when she said, “there's no corporate board in America that would accept we’ll do it better next year on any financial metric yet we've accepted that response on diversity for generations.” It's time we put some real targets into real compensation packages and watch the market impact this extremely important issue.

And I would just say to anyone who doesn't think that racial and gender diversity is an important point for our industry, I'd remind them that the commercial real estate industry is all about community. Communities where we work, communities where we buy and sell goods, and communities where we live, and unless we can make significant progress on these important issues of racial justice we won't be able to create community in our country, in our counties, or in our industry. And I would just underscore these issues. I think W&D has taken a really solid leadership role in them, and we will continue to talk about them, and I'm very much looking forward to talking about them with Leslie this morning.

So, let me now turn to Leslie. It's a real honor to have her with me this morning. Since joining RLJ in 2005 Leslie has played a pivotal role in setting and executing the strategic vision of the firm from her appointment as CFO in 2007 to COO in 2016 and to President and CEO in 2018, becoming the first African American woman to be CEO of a publicly traded REIT in the United States. She helped lead the successful initial public offering of RLJ Lodging Trust in 2011 and is a member of the RLJ Lodging Trust board of directors.

So, Leslie, let me wind the clock back to when you were growing up in Los Angeles and at the ripe age of seven started to help your parents around a daycare center that they owned and operated. What did you learn from your mom and dad during those formative years about running a business?

LH: First of all, Willy, let me just say thank you very much for having me and hello to all of those of you who are listening. For the record, Willy, I love to tell that story. I did start working when I was seven, but I didn't start getting paid until after I got out of college. While my parents didn't necessarily pay me, they did instill in me the values that are the foundation of who I am today. A strong work ethic, my parents worked seven days a week. A commitment to excellence and a sense of responsibility to my family, to my community and to my work. And they also gave me the confidence to chart my own path in my career. Those are the most important things that I learned in terms of working with my family.

WW: Did you always want to run something? I mean having your parents be entrepreneurs and running their own business did you sit there and say someday I want to run something?

LH: That’s interesting, I would say initially no, in fact it was the complete opposite. I saw how hard my parents worked and the sacrifices that they had to make and so for me when I first started working, I simply wanted to go to work, do a good job and get my check and not have to worry about whether or not the light bill got paid. But what I learned over time as my career evolved was that being an entrepreneur was in my DNA, and as I moved through the various parts of my career I realized that I wanted to be close to the decision maker as I was when I was younger. So ultimately landing in a place like RLJ, which was a small organization but had entrepreneurial spirit, was a good mix for me, but that's something I had to reconcile over time.

WW: When you think about those early days and the things you learned from your parents in watching them, what's the most sort of salient part of your character today that you learned from that? As people sit there and look at you as a leader, what's the piece of Leslie's character that comes out of those early experiences?

LH: I think the biggest one for me is that I have a strong staunch belief in leading by example as my parents did within a business and in the community. My mother would always say no one is going to take care of business the way that you would as an owner, as an entrepreneur, and that's something that stuck with me and something that I carry with me, a real focus of mine in terms of leading by example.

WW: You left Southern California and you traveled across the United States to go to college at Howard and I read something where you said that I was taking a finance class in college and fell in love; the concept of taking one dollar and turning it into two fascinated me and I was immediately hooked. I guess the first question I have is what was your initial major at Howard that you then changed to finance and then, second, did anyone point out to you at that time in the early 1990’s that there weren't a ton of women, much less African American women running around the halls of Goldman Sachs and GE Finance, two firms that you later went on to work at?

LH: Great question. First and foremost, for me college was a life altering experience. I was the first one in my family to graduate from a four-year college. When I arrived at Howard University, I was a management major because in my naive mind I thought I was supposed to manage something, I didn't know exactly what, but I was supposed to manage something. Because like my parents, and like my mother's father who was an entrepreneur as well, they managed something and I was supposed to manage something, so that's what I did when I arrived. But like you articulated, I loved my first finance class and really fell in love with the concept of taking a dollar and turning it into two. Finance for me was like music. It was forward looking, it was based on strategy, I just really loved it and so I quickly changed my major to finance.

As I sort of reflect on the question about what I knew and when, I really think it was at Howard University where I learned and started to really focus on making sure that I constantly put myself in a position to succeed, not just succeed in a normal way, but to be extraordinarily successful. And whether it was picking the college I went to, or deciding on what I was going to major in, I was very deliberate in those things. One of the great things about going to Howard University and going to any HBCU is that we were able to have those authentic conversations about being the only one, what it was going to be like when we transitioned into the workforce. Even though I was surrounded by a lot of people who looked like me that propelled a conversation about what it was going to be like when I left Howard University.

In fact, I chaired one of the first Women in Corporate America conferences at Howard University in the School of Business, and we had a panel where we talked about this very topic, about being the first and being the only, and what that was going to be like. And so, as I maneuvered through my career and went on to GE as you mentioned, I found my second love which was real estate. I loved the fact that it was tangible, loved the fact that I was able to marry it with my first love of finance. I then went on to Goldman Sachs, and through a mentor while I was at Goldman Sachs, I found my way to RLJ. And while RLJ was an institution where I was able to leverage every aspect of my background, the most important thing about RLJ was that it was an organization where they could look past my race and gender and focus on my talent. And that was another way of me making sure that I put myself in a position to be extraordinarily successful and I think all of that started at Howard University during those formative years.

WW: If you think about the institutions that you've been in where when you're at a historically black college at Howard and then going out to somebody like GE where back when you joined GE, GE was a big company, had plenty of diversity inside of it and then on to Goldman Sachs similarly, but then turning and coming to the commercial real estate industry, where you and I both know the commercial real estate industry is essentially filled with white males.

Talk about that as it relates to, I mean you're sitting there at GE and you say, yeah, I really liked the combination of finance and real estate but if you'd stayed at GE or you'd stayed at Goldman Sachs they as companies that interface with lots and lots of client bases are by nature more diverse than the commercial real estate space and yet you made the decision to say this is where I want to go. That couldn't have happened without some serious deliberation on your part as it relates to thinking about how successful you could be in your career of choice. Was there a thought at that moment of saying hold it, I'm kind of going into a space that doesn't have a lot of people who look like me, or of my gender, and I ought to stay in these larger organizations that seem to have programs and a lot of diversity around them, versus kind of going into an industry that just doesn't have it?

LH: Great question. I think first and foremost, as I mentioned before, my parents really taught me to have the confidence to be able to chart my own path. And my mentality has always been, that I'll bet on myself any day of the week and twice on Sunday. So, the fact that I was heading into an industry that didn't have a lot of people that looked like me, is not something that I’d let stop me. I just had to figure out what the rules of engagement were and then figure out how to make those rules work for myself. An example of that is, I don't play golf and I don't drink beer, and we all know deals are done on the golf course and at the pub all the time. But I did recognize that relationships were important and I found a way to build those relationships despite not playing golf or drinking beer, and that has been a thing for me throughout my career in terms of not necessarily being afraid to enter into it, but making sure that I understand how the game is played, what are the rules, and then mastering those rules and making them work for myself.

WW: How do people who want to work on these issues make progress on them? How do they find Leslie Hale? I mean your pedigree is impeccable. It's Howard University, Harvard Business School, GE Finance, Goldman Sachs. There are plenty of people, I'm assuming, who are sitting there listening to this and saying, man, I mean that's kind of a no-brainer, you want to go find the Leslie Hale’s of this world and recruit them to your organization. Yet they honestly don't know how to do that, how to set a plan to find really good diverse talent. Everyone seems to be looking for the playbook right now. What have you either seen, done, you sit on the board of Howard, you sit on the board of Macy's, you sit on the board of RLJ, you've seen lots of boards contemplate these issues about how to be proactive on them. What can you share with our listeners today as it relates to how to create a playbook that you can then execute upon to be better on these issues?

LH: There's a lot packed into that question, Willy, so I’ll try to unpack it a little bit. If I miss something come back to me. I think first and foremost, it's really important to dispel this concept that that I'm a unicorn. While I appreciate the uniqueness of my role and where I sit the reality of it is there are plenty of people of color and women who have just as much skill as I do. I think it's important to dispel the concept that the pool for potential executives is limited, because if you believe that, then you allow your organization to accept the lack of diversity and so we have to dispel that concept.

When I think about what executives can do and how boards want to think about it, it starts at the top. I believe that in this industry, real estate and lodging in particular, there is plenty of opportunity for diversity at all levels of the organization. Having said that I think the most impactful thing to do is to add diverse leadership on the leadership team, because those individuals will be helpful directly and indirectly driving diversity throughout the organization. And while it's important to add diversity at the lower ranks, that won't necessarily help you drive it through the organization. I think the first thing is where do you start, because you can't do it all at the same point in time, so I think it's important to sort of start at the leadership team by adding diversity there.

When I think about my own career, in terms of how I got to a leadership position, and then what allowed me to be successful as a leader, there’s sort of kind of two areas of focus, Because I think oftentimes what people do is they say well I put somebody in a leadership position and it didn't work. It's not enough to simply put diverse candidates in, it is important to ensure that they are successful by providing a support network.

When I sort of think about the two things that allowed me to be successful and get to a leadership role, I think about the fact that as a leader I had to have somebody provide me opportunity, access to the opportunity, and then provide me the support through mentorship and sponsorship throughout my career to help me ensure that I was successful. I think that access to opportunity is very important and that's something that leaders can do. They're empowered to do throughout their organization by doing exactly what you're doing in terms of making sure that you set targets around having a diverse leadership in key roles, in high earning roles. That creates opportunities for diverse candidates to be put into.

I think that the second component is providing support while they're in that role and that support comes in a variety of different ways - obviously mentorship and sponsorship is well known and understood. You mentioned Jamie Dimon. I'm sure whether it's Jamie Dimon or Debbie Cafaro, all of those people had somebody in their career who helped them as they ascended through that. It’s no different from me, and no different for any diverse candidate as well. If I sort of think about my career in three phases, the first phase of my career, as you mentioned when I was at GE and Goldman Sachs, the vast majority of my mentors were actually white males. Why do I point that out? Because it's important, one, for diverse talents to understand that mentors and sponsors don't have to look like you, but it's equally as important for leaders to understand that you can impact somebody's career no matter at what point you touch it, because the individuals who helped me early in my career are equally as responsible for my success today, as the people who were later in my career. Because they laid the foundation and it became a sort of a domino effect of me being able to get different opportunities.

In the middle of my career it was largely African American men because I was focused on something differently at that point which was understanding the politics of corporate America and how do I navigate that. The latter part of my career was largely women, because as I ascended into leadership roles, they were uniquely positioned to understand all of the challenges that I was facing as a woman leader, as a mother, etc. That support network has been there throughout my career and it's evolved over time. So as a leader, you have to make sure that you're providing opportunity, and you have to make sure that you have support networks, so that that diverse candidate can ascend and be successful.

The other area that's important for leaders to focus on as they think about increasing their diversity is what's the environment that you are creating. Are you creating an environment where people can bring their whole self to work? Is the organization that you have, is it a true meritocracy? Does your organization truly value diversity of thought and perspective? When you have an environment like that, you free up diverse talent to perform at extraordinary levels and that's what happened for me at RLJ. I didn't have to worry about being African American, I didn't have to worry about being a woman, I was able to focus on outcomes and my performance, and when that occurred I was rewarded and recognized in that environment.

I think that when organizations can create that type of environment where you can bring your whole self to work, you will see diverse talent perform at extraordinary levels and ascend up in the organization. When I think about it, I think about it in the form of access to opportunities, I think about it as support throughout your career and I think about it as the environment that you create for women and minorities to perform in.

The other bucket that you talked about was recruiting. I think it is very important when you think about how do I source talent, because I'm always amazed when people say well I can't find it because I don't really have a problem finding it. But what I would say to you is that, one, you need to look beyond your own network. It's not a surprise that when people think about their sphere of influence and their network and who they golf with that there's not a lot of people who look that vastly different. You’ve got to look beyond your own network and tap into other resources. There’s a ton of organizations out there that specialize in finding candidates that are like me.

The other element that’s really important is that you have to be willing to give somebody a shot who doesn't fit the box perfectly. You have to be able to look at somebody and say does this person have the aptitude, do they have relevant experience, not necessarily perfect experience, and do they have a proven track record of being able to parachute in, and deliver on whatever opportunities they’re given. And the fact of the matter is that's what happened for me. Tom Baltimore gave me this opportunity. When he was looking to build this business, he wanted to make sure that he had diverse talent. A significant portion of the minorities who came to this business were not lodging people. I didn't have a lodging background. I had a real estate background, but I didn’t have a lodging background, but he gave me a shot. And absent being given that shot, I wouldn't be here today. If he had stayed inside that perfect box, I wouldn't be sitting here today.

WW: First of all, thank you for all that, super insightful, and helpful. You've been a student of leadership throughout your career and the last three months have presented all leaders with some real challenges as it relates to leading through this crisis, leading in a remote setting. How's it been leading RLJ from, I know you're back in the office today, but from the confines of your home and what's worked and what hasn't worked?

LH: First of all, I know you've previously had Nancy Koehn on your webcast a while ago, she was a professor of mine at Harvard, and I'm a big fan of hers and a big fan of her writings on leadership. She talked about in one of her books about Lincoln. Lincoln said the toughest conversations that he had were the ones that he had with himself when he was in the White House, and I would say that's the case for me. There were many moments during this time where I had to have some tough conversations with myself to make sure that I was making the right decisions for our people, for our customers, and for our business, and so it's been a very stressful period of time. Having said that, I think that from style and approach during a crisis, it really hasn't changed relative to, prior to COVID-19.

What I would say is that as a leader, we have the responsibility of developing the vision for the company, establishing a strategy to execute that vision, building a team to execute that strategy, and then creating an environment to recognize and reward that team. And being able to communicate all those things in a way that allows people to galvanize behind it. That same approach is exactly what I did in this crisis as well. I had to adapt that approach but it's the same approach. We had to think about our business differently. We're in the business of opening and running hotels not closing them, but we had to sort of think differently about that.

We also had to develop a strategy and then execute on that because we didn't know how long this was going to last and we don't know how long this is going to last. We had to come up with a strategic approach towards executing on that. And then I had to reposition my team, I didn’t have to build a team but I had to take the team I had and sort of move people around in order to execute on that strategy because it was different than what we were doing, what I had built the team for.

And then the other component was I really had to let my team know that I was in the foxhole with them. And I had to communicate all of this in a way that was calm and thoughtful despite the crisis that was around us, so that the team would stay calm, and the team could focus on those new priorities. I think that's been my framework approach and really hasn't changed even in this moment of crisis.

WW: You said you're in the business of opening hotels not shutting them down. How many hotels were shuttered during the crisis and then where are you as it relates to opening those hotels back up and we'll dive into kind of the performance metrics right now. We don't have to talk too much about your portfolio but generally speaking in the hospitality space. But how many hotels did you shut down, how many are back up, and when do you think you'll have all of your hotels back up and going?

LH: We had suspended operations in about 57 hotels, and to date we have reopened about 20 of those hotels. As we've seen demand pick up, particularly in drive through markets, we have reopened hotels that can benefit from that type of demand. I would say that the lodging industry was running about 40 percent occupancy last week which is about 20 points above where it was at the lows in March. We felt and knew, as everyone else predicted, that leisure demand would be the first demand to come back, and that has proven to be true as individuals have gotten obviously tired of being at home, and as stay at home ordinances have been lifted they've gotten in the car and started driving, and also that's coinciding with the summertime and people are getting out more and so we're seeing that leisure demand beginning to pick up.

WW: If you look at the leisure demand picking up and if you look at kind of the segments in the hospitality space of the high end hospitality getting just slammed because there's no leisure travel on the high end and there's also not business travel on the high end, but then some of the, if you will, what I call kind of workforce hospitality where people are driving across the country for a job where they need to go to a work site and have to stay in temporary housing, that sector of hospitality has held up quite well. How's your portfolio positioned to either waiting for the high end to rebound or, if you will, being one of the better portfolios as it relates to kind of that next level of activity from an economic regeneration standpoint?

LH: The segment that you're referring to is sort of the mid-scale and the economy segment, which is not what we play in, we play in the upper scale segments. The types of hotels that we focus in on are compact full service and upscale limited service hotels that are premium branded by Hilton, Hyatt and Marriott, they’re rooms oriented products, they have high margins and they're located in the heart of demand. We believe that that's the right way to play lodging and it’s a more resilient model and we're seeing that sort of play out on a relative basis in terms of how our portfolio is performing relative to our peers.

Our portfolio is 80 percent transient oriented and we think that transient is going to come back, obviously driven by leisure first, and so we think that our portfolio is well positioned because of our lean operating model, because of our transient oriented nature, and also our low cost of carry relative to the types of nature of the assets that we have. Additionally, over 50 percent of our portfolio is suites-oriented products and that product is probably going to be more attractive to consumers right now particularly in an environment of social distancing. Rather than spending your time in a public space, you will spend more time in your room and being in a suite product where you have a double bay to play with is going to be more attractive we think in the short run so we think our position on a relative basis is strong no matter what the shape of the recovery is.

WW: You talked about your relatively low-cost operating model. Have you all done anything significant as it relates to changing the operating model so that your break-even occupancy level can come down as you're recovering here? Has there been any major shift to either, I mean has there been any cost savings out there to find, or has everything actually just gotten inflated because the cost of cleaning and maintaining these assets has gone up due to the health concerns?

LH: I would say that overall, when the demands started to fall, we were very focused on containing costs and so we obviously like everyone else cut staffing which represents about 48 percent of our cost load. We also reduced and closed F&B outlets and also reduced other services, and then we shrank the hotel and so we reduced the number of floors that were available, all of which was in an effort to control cost.

I would say that on the cleaning side, while there is an increased focus on it we are doing deeper cleans on the lobby area, and deeper cleans between customer stays, but not cleaning while customers stay in the hotel, in order to keep social distancing and make sure that no one else is going in a guest room. So that sort of cutting down on the cost of going into the room every day is offset by the cost of cleaning the lobby more frequently and so we're seeing sort of a cost neutral approach right now. But I would say everything that we were focused on was about bringing down costs and reducing our burn rate. Keep in mind, even as we open up hotels, we still have a negative burn rate it's just less negative.

WW: You heard me talking previously Leslie as it relates to the Cares Act and the unemployment benefits and a lot of concern particularly from Senate republicans as it relates to those benefits being greater than what people were making pre crisis. Have you had any issues on those 25 plus hotels that you had to shut down. Have you had any issue as it relates to bringing staff on, and at the price point at which you're bringing those people back on?

LH: We have seen some scenarios where some staff that we originally called back may have been hesitant to come back. It was less around dollars in most cases, although that was the case in some cases, it was largely around concerns around safety. Having said that, given the fact that hotels are typically not wanting that much occupancy, we had other staff within the pool that we can pull from who were able to fill our staffing needs.

WW: I think that's a super important piece to this whole kind of question and your answer underscores it, which is I think it is driven by both, a little bit on the economic side but much more on the safety side, as people were drawing people back in. If you can create a safe environment, I think those people who want to go for a job are going to go for a job, and so I think that's a huge element to that.

If you think about the partners that you have in Marriott and Hilton and other big brands - first of all I would point out that, we talked about Nancy Koehn and leadership and we were both fortunate to study, and be in Nancy's class in business school, but I would say that Arne Sorenson's video that he sent out to Marriott employees at the beginning of this crisis, I think will be looked at for - you may recall the J&J case study that you and I both studied as it relates to their response to the tampering of Tylenol, and how J&J sort of immediately shut things down, cleared the shelves, and that was sort of the crisis management case study that everyone's tried to live up to subsequently. I think Arne's communication as it relates to Marriott, the layoffs they had to endure and what was happening to their business will go down as sort of the CEO in crisis, look at what somebody does from a communication standpoint case study for many years to come.

But as you think about what Marriott and Hilton are trying to do are you seeing, what's going to change in our hotel experience? When we go to a hotel and stay there, when everyone gets back to sort of life is normal whether it's in COVID or outside of COVID, what are the things that we as consumers are either going to see or not see, that you and your partners in Marriott and Hilton are going to implement?

LH: First let me say, I agree with your comments about Arne, and I do want to acknowledge that our brand partners have been very collaborative, they've been nimble on the cost side and they’ve been flexible on waving brand standards which is important to the ownership community as we try to control costs. We are focused as a group in terms of partnering around the cleanliness and addressing consumer expectations as we try to get them comfortable with traveling again. And so I sort of think about the consumer experience, you sort of think about there's a check-in experience, the lobby or public space experience, there's the in room experience, and then there is sort of the general experience in the hotel.

As I think about your experience in terms of checking in, obviously you will see PPE and protection items throughout the hotels as you would expect to see in any space you go in today. And you'll also see, where possible, a push towards using mobile check-in which will allow you to bypass the front desk and go straight to your room. You'll see those things on the check-in side.

In the public space area, you'll see a de-densification of the space. So in the lobby area you'll see less furniture to dissuade people from congregating. In the gym area you'll see signs on some of the machines so that there’s spacing appropriately. In the public space you’ll see a lot of signage around encouraging people to practice social distancing.

The in-room experience which we talked about before you will see the cleaning experience dramatically change. If you're there for a three night stay instead of having your room cleaned every day it will be cleaned before you arrive and won't be cleaned until after you leave. That is a big change within the space, although the cleaning of all the public space, and all of the various things that are touched on a high touch basis will be cleaned more frequently.

I think the last area, the general experience around the hotel, you'll see services like F&B have more limited service offerings, and you'll also see some services, maybe like valet, that have been eliminated so that nobody's getting in and out of your car except for you.

And I think the real question is which of these things is going to be temporary and which of these things are going to be permanent. I think the things that are related to technology will clearly stay in place because people are making investments around that. The things that are related to the cleaning of your room, it's yet to be determined whether or not that is going to be a permanent thing that we do in the lodging space and something that's being evaluated today, it’s just too early to determine whether or not it’s permanent.

WW: I'm really disappointed that my bed’s not going to be made for me, when I go to a hotel it’s the one time when I don’t have to make my bed when I wake up in the morning, that's too bad.

LH: It’s for your own safety.

WW: Yeah, exactly, I realize it’s for my own safety but it's also a nice luxury when I'm on the road. As you think about the transition and all those things you just outlined, I think back to movies in hotel rooms that used to be a big revenue generator until everyone got Netflix and then went to their laptop and logged onto a free Wi Fi network and now all of a sudden the pay per view in the rooms went away and hotels had to work to try and replace those revenue streams. As you just walked through what the hotel of the future looks like, and common areas, restaurants are going to have to either lower occupancy or the bar area that typically is the place that lots of people going to a hotel will meet with a colleague for a drink at the end of the day, if those revenue streams come down, where's the offset? Are there any opportunities there for hotel owners like yourselves to focus on something and replace the revenues that you're going to lose in these common spaces?

LH: I think in the short run Willy, no. We ultimately believe that long term people will travel again and that we will ultimately be able to increase our F&B offerings as opposed to keep those services limited. We recognize that it's going to be a slow ramp to being able to do that in the absence of a medical solution, but I think in the short run, given the situation we have with social distancing we're really limiting the areas within the hotel that we're able to utilize and, therefore, that is going to be very impactful to our revenue stream.

WW: If you think about that outlook as it relates to, it's going to be tough to replace those revenues, there's clearly plenty of distress happening in the hospitality space right now. There was news on Monday that Colony is basically turning all the debt in a $720 million single securitization on a portfolio of hospitality assets back to the special servicer. Are you all - you acquired FelCor Lodging back in 2017 so you've not been shy of doing major acquisitions, are you looking for opportunities right now? Obviously you're not going to tell me if you've got something that you're really looking at but I just want to get your sense as it relates to, from a cycle standpoint, is it too early to jump at opportunities or are there opportunities appearing that RLJ would be interested in running after?

LH: So what was interesting is that if I look back at the FelCor transaction, that transaction gave us a lot of actionality that we executed last year, which put us in a position to have a strong balance sheet this year, so that is a transaction that keeps giving to us in many ways.

To your question about opportunities, I think that there will be opportunities that arise. The open question is when and size of scale of the opportunities. Our general house view is that early on that lenders are going to continue if they can and that the assets that first come out are probably going to be the less desirable assets. We’ll see that come to fruition towards the end of the year or fall when banks get more pressure from the regulators to mark-to-market their debt. We think that the types of assets that we would most likely be interested in will not start to shake loose until sometime next year as owners are either looking for liquidity, or they don't want to make a decision, they don't want to feed the asset any more. But our initial reaction is that early on it's probably going to be the less desirable assets that come out and that the assets that we're looking for are probably sometime next year but we hope to be in a position to be able to be active and, again, the strong liquidity position we had at the beginning of the year will put us in a position to be active.

WW: Have you had any multifamily owner-operators or universities approach you as it relates to repurposing hospitality into either multifamily or student housing? I know that up in Boston there's a university that went and bought a hotel and has converted that into student housing and there's been plenty of discussion. I'm just curious, have you been talking to or been approached by any multifamily owner-operators to either convert to multi or to turn it into student housing?

LH: On the university side, we have had some limited interaction with universities that are looking to either lease the entire building or a significant portion of it. It hasn't turned into a buy-sale discussion. Obviously in the absence of a medical solution, and the prolonged need to lease those types of buildings for extra space, it could possibly turn into a transaction, but we have had some inquiry on a limited basis.

We haven't, in our portfolio, had the inquiry for multifamily although we are still hearing the same conversations that you are that that may be an increasing opportunity in some markets. We do know that, in New York for example, to the extent that some hotels won’t open back up that converting to condo or multifamily is a possibility but that's sort of just still conversation at this point. But the university is being active in terms of looking for extra bedding in order to be able to social distance and it's a real discussion.

WW: And on student housing, you're on the board of Howard University. I guess first, is Howard going back in the fall and then, if so, how do you think the student experience is going to be different than it was pre-COVID?

LH: Howard University is led by Wayne Frederick who's obviously going to be on your show in a couple weeks, he’s is a great leader, and like every institution Howard is evaluating different scenarios right now. The decision on what's actually going to happen in the fall hasn't been made, but they are evaluating a scenario to bring back students, they're evaluating a scenario which has distance learning continuing and their evaluating a hybrid situation and they're going to be prepared for either one of those.

As we all know, for college students interacting with their peers is really important. College is where you find your lifelong friends and sometimes the love of your life and so to the extent that Howard can bring back students in a socially responsible manner they will try to do that, like every other institution, but that decision will be made by the administration at the appropriate time. But it’s safe to say that the classroom experience, the dorm experience, and the experience in the dining hall, will be different as students come back in order to respect social distancing whether de-densifying the dorm rooms, de-densifying the food halls, all of those things will have to be respected as universities look to be socially responsible to bring back students.

WW: On Howard, just as an aside, do you think that everything that's going on right now as it relates to racial justice in America makes it that enrollment numbers at historically black colleges go up, go down, or stay about the same?

LH: It's interesting, I can't really say how the social justice component is going to impact but what I would say though is that in a crisis you see university enrollment go up in general and Howard is seeing that like many institutions, so it's hard for me to decouple the crisis which was driving applications up, versus what's happening on the social justice side. Having said that, I would imagine that that has had impact, but I don't have any numbers for you as it relates to that.

WW: Just one thing as we're talking about historically black colleges. I would underscore Reed Hastings donation to three historically black colleges of $120 million, $40 million to each, to be just an incredible gift. But everything he’s said about that and how he was fortunate to go to Bowdoin College, is a great alum of Bowdoin College and has predominantly given to Bowdoin, and got sort of his orientation turned towards the need for bigger endowments at the historically black colleges and what they do. And I would just say as far as leadership gifts are concerned, I'm sure Howard would have liked to have gotten one of those $40 million pieces to it, but it's really a great move by Reed and hopefully other billionaires and leaders who have the wherewithal to support those institutions will do so.

LH: I'm glad you brought that up because I think it is important to acknowledge them for the gift that they made, and we're happy that the money was brought into the Historically Black Colleges and Universities (HBCU) system, to UNCF as well as Morehouse and Spelman, and I'm happy to see that occur. I do think that HBCU’s can be part of the solution. They play an important role in terms of educating many people who rise in the ranks within organizations and within corporate America in particular, and so whatever we can do to support them is very important. People don't really always understand the statistics behind - more than 50 percent of all the dentists in the United States come from a place like Howard University. Howard University produces more PhDs than Yale, Stanford and a lot of the Ivy League's added together, so the role that Howard plays in particular - but HBCU’s as an aggregate play, is very important to diversification of our country.

WW: Let's move to another board that you're on, and I know you're not going to speak specifically about Macy's, but you do have a good view on the retail sector. We saw retail sales rebound 17 percent in the month of May and my assumption would be that we're going to see some pretty good numbers in June as economies continue to open up. I guess the question would be at this point in the cycle of the recovery would you rather be an owner of a retail asset or a hospitality asset?

LH: Well…

WW: That's a tough question - I know that’s a really tough question.

LH: I really don’t want to pick industries, retail or not. First, let me just say, I think you have to be careful relying on data that is either a one-week data or a one-month data, that doesn't make a trend. Data right now is, you’ve seen a debt cap balance in some data. You also talked about all the stimulus that is in the system so it's artificial capital that's in the system right now. We also don't really understand the trends. Even though, for example, lodging’s up 20 points since the lows, we don't really know what's going to happen when the leisure demand wanes and people go back to school, what's going to really sort of be there, so I think you have to look beyond and look longer term than that.

What I would say is both of these industries were in a paradigm shift prior to COVID. Retail was being pushed because of the online component obviously affecting the brick and mortar side. Lodging was being affected by increase in lifestyle brands as well as Airbnb’s of the world and so all of that paradigm shift was underway. I don't think crises create the paradigm shift but what they do is accelerate trends and so we're seeing now retail having a significant pick up in online sales, but that trend was already underway, and we're seeing lodging for example move towards more technology like mobile check in, that trend was underway but will now be more accelerated.

My general perspective is that industries will fall into one of five categories. It will fall into the categories of incremental demand, what you're going to see in PPE and things around data. It will fall in demand, temporary demand, which we believe lodging falls in. You will see demand where it's been permanently impaired and perhaps malls fall into that. You’ll also see areas where there's no change and then you'll see new innovation.

From our perspective we believe in lodging long term, and we believe that people will travel again, and that we will get back to pre-COVID levels at some point, so the model still works from a lodging perspective. On the retail side, I believe that players that have strong brands, strong management teams, like a Macy's, will ultimately figure out what is the right mix between brick and mortar and online, and they will thrive again. I think you have to look past short-term data and really look at what's the long-term viability of a particular industry.

WW: You mentioned Airbnb, just a quick question on that. Do you think that COVID and the heightened sense of cleanliness and knowing the product and all that kind of tips the balance back towards established brands and the properties that you all own and away from an Airbnb similar to how in the office space people are sort of saying shared office space in a WeWork environment probably isn't somewhere where people are jumping back into right now and they want to go back to kind of this is my space, I know how it's taken care of and these are the policies and procedures we adhere to?

LH: I think it's great question. I think that in this moment in time it's a unique opportunity for the lodging industry to really demonstrate the power of the brands and I think that it's a unique opportunity for brands to really win back customers in a very big way around making them feel safe and having the brand represent a stamp of approval. There is going to be a sub segment of our customer base that does prefer hotels over renting somebody else's space. You're also going to see the inventory of Airbnb’s shrink because people are going to be less likely to want people to come into their home. The inventory will shrink, and we think that there's a possibility that the use will go down as well.

Where I think that there is a real change is more so on the business side where Airbnb was trying to make inroads into getting the business community to rent their spaces as well. I think that will be stunted. The leisure side, to be determined, because I think the ability to rent an entire house, particularly in COVID when you're trying to isolate yourself, it's probably attractive if we're being honest, intellectually honest. But I do think the side of trying to get business travelers into the Airbnb space I think is going to be stunted significantly by COVID which will obviously bode well for the broader lodging industry and I think it's an opportunity for us to gain share.

WW: Super insightful. Two final questions. One, this has been an exceedingly challenging period for our world, our country, the economy, the lodging industry, the retail industry. What are you going to look back upon as a positive development or outcome from this crisis?

LH: You know Willy, call me Pollyannaish, but I think the most positive thing that's going to come out of this crisis is that I think that we as human beings will be more appreciative of our human interaction. I think that we're going to understand the ability to interact, whether it's at a conference, the ability to interact in the office, or to go see grandma who we couldn't see recently, we're going to place a lot more value on that, and I think that's going to be a silver lining that I think helps change hearts and minds of a lot of people as we move forward.

WW: And the final one which is that you are the mother of four, how have you managed to run a public company from home with four kids, and the more important question, what are you going to do in September If they don't go back to school?

LH: Willy, I remember vividly sitting in the back of the classroom as a senior in high school saying that I would never be a good teacher. This COVID experience has reinforced that vividly, that I was not cut out to be a teacher. I love my children. But I would say that I have an amazing husband who's super supportive and has been very supportive of me and my career and he’s done a great job of being able to help me navigate with the kids at home and I've also come into the office a little bit in order to break up my routine. If they don't go back in the fall, I’ve got to scratch my head and figure that out, but I've got my fingers crossed that they're going back.

WW: That's great, well so do I. Leslie, thank you so much for spending an hour with me. It's been a real pleasure, your insights on all these issues have been fantastic so thank you very, very much.

To everyone who's joined us again on this Wednesday, thanks. We've got Bill Demchak, CEO of PNC joining us next week and I hope everyone has a great day. Thanks very much.

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