Delegates at the Hotel Alternatives conference held in London last week were told that UK banks are finding it tougher to compete with alternative lenders who are offering more advantageous terms to increase their share of the debt market. Nevertheless, there is still plenty of opportunity for the traditional UK lending banks to have a major impact on the hotel sector in its many alternative guises.
Russell Kett, chairman of HVS London, was moderating representatives of Barclays, Clydesdale and Coutts banks, along with mezzanine provider Beaufort Capital Management, as they discussed the alternative hotel segments that are the safest bet for lenders, and how the lenders view the emergent offers. It turns out that the bankers were generally unimpressed with most of the variety of alternatives on offer, preferring to focus on student housing, serviced apartments and caravan parks.
As always, the track record of the borrower is of paramount importance as is their ability to deal with issues effectively when things don’t go to plan. Ensuring there is at least 30%-35% cash equity in a deal is their favoured position, with a limit of a multiple of EBITDA also factored in. Perhaps surprisingly in a hotel-oriented debt panel, there was a strong appetite for the funding of new developments as opposed to just financing existing assets. Equally surprising was an almost complete lack of impact that UK banks are seeing from Brexit on their ability to do deals in the hotel sector. With only 50 days to go until 29 March, maybe the hotel sector will demonstrate a resilience which the rest of the country could learn from?