Global hotel growth boosted by improved lending environment
The recession has created a new, positive environment for the financing of hotels, according to a new report from accountancy firm Grant Thornton.
Gillian Saunders, global leader hospitality and tourism at Grant Thornton, said the world of hotel finance has changed "massively" in a short time. "Despite the pain of the financial crisis what's emerging, as a result, is a more sophisticated and ultimately more effective understanding between investors and lenders and hotel businesses.
"This new environment is welcomed by hoteliers and comes at a time when there is resurgent appetite to invest and lend to the sector. It's promising for the financing of future growth in the sector.
Saunders went on to say that before the recession many banks treated hotel businesses like real estate, whereas now they're viewing them as business enterprises.
"Instead of the historical focus on loan to value ratios (LTVs), specialist hotel finance teams are analysing EBITDA and leverage multiples," she explained. "In short, checking whether debts can be serviced and cash flows sustained. It's a more grown up dialogue."
Grant Thornton is now advising hoteliers who are focused on growing their businesses to rethink their proposals if they are to be successful in receiving the finance they are after. The company suggests that hotels should talk to prospective lenders about branding, management, finances, the business plan and marketing.
"Banks and private equity investors are saying that they want much more insight," said Saunders. "The days of turning up with a one pager are over. Among other things, they want to hear a good equity story with aligned investor interests. It's also vital to demonstrate an experienced, committed management team with a business plan that shows knowledge of target market segments and has a business case aimed at them."
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