INVESTMENT
WE EXPECT THIS [ LENDING ] APPETITE TO GROW AS THE INDUSTRY RECOVERY DRIVES INCREASED GEARING LEVELS AND TEMPERS THE RISK MARGINS BANKS ARE EXPECTING FROM HOTEL TRANSACTIONS .
– STEVE CARROLL
increased gearing levels and tempers the risk margins banks are forecasting for / envisioning from hotel transactions .
We ’ re also fielding enquiries from funds seeking to take strategic positions to provide financing for hotel developments , newly completed assets , working capital and mezzanine debt .
Based on assumptions that the industry has weathered the worst of the COVID storm and that cashflows will improve from the current base , these funds are looking at financing structures ranging between three and five years .
Pricing and returns are being determined via a mix of interest paid through operational cash flow and either a preferential equity carry or interest capitalization component , with exit strategies based on refinancing to more traditional banking structures or asset sales .
These complementary funding arrangements will help drive the recovery of the Asia Pacific hotel industry , giving investors access to higher leverage to support their market re-emergence and growth .
We are already seeing this play out with Asia Pacific hotel investment activity rising 46 % yearon-year to reach US $ 12.1 billion in 2021 . Hotels are gaining appeal as a potential inflation hedge due to the sector ’ s uniquely short lease period measured in days rather than months or years as with other property types .
Obviously higher leverage will attract a higher cost of debt to reflect a perceived increase in risk . However , we generally believe that the blended cost of debt in the market will continue to stimulate more transactional activity .
Ultimately , we expect traditional bank lending confidence to keep growing , putting competitive pressure on pricing and in turn increasing the current debt opportunities in the market .
There will always be a need and demand for funds or non-traditional banking partners to provide greater leverage in the hotel market and we forecast these options to continue to grow .
We also expect to see steady growth in the use of sustainable financing amid a rise in consumer awareness regarding the environmental and social impact of travel and tourism .
A recent example involves Hongkong and Shanghai Hotels securing its first sustainability-linked loan totalling US $ 160.3 billion . This followed Worldwide Hotels Group securing its first green loan facility with Maybank Singapore valued at US $ 299 million to fund its 8 Club Street hotel and commercial development – marking one of the largest green financing deals in the Singaporean market .
40 hotelsmag . com June 2022