Hotel sector needs to attract new investors

[01 December 2009]

Investors generally view the hotel industry with suspicion, according to leading industry experts at a specially arranged interactive discussion session last week.

This in turn is preventing much needed debt finance from flowing into the sector, and is therefore causing many potential developments to stall due to a lack of funds.

The industry needs to greatly improve its benchmarking and performance assessments for it to start rivaling other leisure, hospitality and property sectors.  Many of the investors at the talks said that the hotel industry was far too complicated, secretive and didn’t provide enough guarantee of returns to tempt investors into releasing capital into the hotel market.

The talks brought together leading investors, hotel operators, bankers and developers at built asset consultancy EC Harris with support from King Sturge and Hotel expert Andrew Sangster, to discuss how to find the key to unlock hotel development.

Other findings controversially threw up blame on valuations, with the experts saying that valuation teams are too pessimistic in their analysis of assets and not sufficiently flexible in outlook to consider the longer term value that many hotels hold.

Gabrielle Gambina, Hotel Consultant at King Sturge commented; “Uncertainty and lack of visibility in terms of future hotel performance is creating uneasiness amongst developers. This is exacerbated by the lack of clarity as to the blueprint for hotel development. What constitutes a 'good' deal for a bank's credit committee? Whereas LTV was THE benchmark until a few months ago, today's lending criteria vary between institutions and include a range of indicators like LTC, EBITDA multiples and LTV.”

There is a need to involve bankers much earlier in potential developments rather than presenting them with schemes that are “fait accompli”. By involving banks from the outset a development’s funding chances are greatly improved which in turn enhances both operational performance and deal structures. 

There was also agreement from the experts that forming more strategic alliances would help to blur the edges around more traditional roles of developer, operator funder and investor so that risk is shared more evenly. Collaboration between all involved in the deal map, and a drive to long-term partnership particularly between operators and owners / investors will help to unlock the pipeline – “it takes two to tango.”

Alan Sugg, Head of Hotels at EC Harris, concluded; “There are a variety of ways to help unlock new development, but sourcing new investment is absolutely key. To enable this, the sector as a whole has to look at itself more closely, improve its transparency to outside investors and collaborate more with banks at an earlier stage. Only by doing this will the current stalemate in new developments become unblocked.

“There was however a general consensus of a “cross sector wish list” to unblock deals. Operators expressed giving greater flexibility on their insistence for management agreements and relaxation of brand standards, more equity injected by investors, more hotel experience within the credit committees of banks, and more developers willing to put their own cash into the deal.”

For further information, media should contact: Lauren Verner, Senior PR Executive, +44 20 7812 2129, lauren.verner@echarris.com

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Notes to Editors

About EC Harris

EC Harris is an International Built Asset Consultancy - acting as trusted advisors to clients - in planning and executing strategies that optimise the construction, operation, use and ownership of built assets.  The firm has 46 wholly owned offices in 24 countries employing 3,400 people.  Turnover in 2008/09 was £306m.

About King Sturge

King Sturge is one of the largest international property consultancies in Europe. In the UK King Sturge owns 23 offices and on the continent it operates 19 offices in 14 countries; they form part a worldwide network of over 215 wholly owned and associate offices in 47 countries.  Over 3,800 staff throughout these offices cover all property sectors and specialisms including plant and machinery, and residential.

In Europe, King Sturge operates in the major UK commercial centres and principal mainland European cities.  In Asia Pacific, the firm has associations in Australia, Indonesia, Malaysia and New Zealand. In the Americas, King Sturge has business partners in North, Central and South America through King Sturge CORFAC International and ChainLinks Retail Advisors.

Through a joint venture with a wealth manager, King Sturge now has a presence in the Middle East. The office will initially be based in Dubai, concentrating on states in the Gulf Corporation Council: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.