None of us can argue that it hasn’t been an interesting past year or so with the UK voting to leave the EU and the election of Donald Trump as the president of the US.
However, hotels in the UK have proved to be resilient and the general view is a positive one: the hotel sector is doing well and banks are in the market and wanting to lend.
There are some key reasons for this. The value of sterling remains low, so the rise in visitor numbers is expected to continue; this will also increase the level of ‘staycations’ in the UK due to the cost of holidays abroad. However, there’s also an impact on operating costs due to the rising price of imports, which directly affects the cost of food and drinks. Staff shortages are also a cause for concern as the EU negotiations progress.
There remains a strong demand for bank funding, with owners and operators looking to acquire, develop, refurbish and extend existing hotels. With this in mind, I’ve collated a list of some key areas to consider when going to a bank to get your hotel project funded:
1. Relationship building – hotel lending requires relationship building and the management team is central to creating the relationship. When approaching banks, it doesn’t start with the transaction: it starts with the borrower and its wider management team. The better the banker knows the client and its team, the better the chances are of getting a deal done. Having other banking relationships is key, the sector is small and hotel bankers are visible and out there.
2. Equity – make sure equity is agreed. This is one of the first questions the lender will ask, and is this secured? It needs to be the right debt/equity mix.
3. Pick the right bank – go to the right bank depending on the transaction, some banks like development, some don’t. Some like central London more than the regions. Some can only service the location where they are based. Some can only go to a certain debt limit. Understand which banks to target and who at that bank can do what. This will help with the overall relationship.
4. Business plan – a well thought-out, simple, concise business plan is key. Be prepared to cover all the main points when presenting to a bank. The non-financials are just as important, the wider management team is crucial. Always think about the overall strategy – banks want to know. This is key in assessing any deal. What is the plan for this asset and the wider group?
5. Bank focused – when presenting to the bank, remember it’s for debt, not equity. Focus the plan on debt, overlaying the debt costs in projections etc.
At Metro Bank, the hospitality and leisure team has been extremely busy over the last few years helping our hotel customers acquire, refurbish, extend and rebrand, and is now looking at supporting the development of new hotels. We are aware that this is a key area as per Knight Frank’s UK Hotel Development Opportunities 2017 report, which stated that: “In 2017, new-build hotels are forecast to account for approximately 60% of the total new hotel supply in the UK. The branded budget hotel sector is the engine driving this growth, accounting for 64% of all new-build properties.”
The hotel industry is not going anywhere and it’s a sector that we are passionate about lending to here at Metro. I, along with the H&L team, will be at the Annual Hotel Conference in Manchester in October, so please track us down. I will also be on a panel discussing bank finance, so please pop along.
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