Neil Kirk, the chief operating officer at L+R Hotels has warned that the hospitality industry is facing a “liquidity crunch.”
He said that dire trading during the pandemic meant lenders were often willing to extend emergency finance with relatively light conditions. Covenants, he said, were often relaxed and interest and repayment dates postponed.
As trading picks up, notably in the UK, Kirk, who was speaking on a panel at the Annual Hotel Conference in Manchester, suggested that lenders are likely to get tougher.
The crunch may come despite panellists agreeing there was a “wall of money” being offered to the industry at present.
Lily Wecker, vice president of investment and head of hotel portfolio realisation at Zetland Capital Partners, a London-based special situations fund, said: “a lot of capital has been chasing the opportunities,” and that valuation discounts were narrowing.
Guy Pasley-Tyler, a portfolio and fund management direct of Archer Hotel Capital, said that some deals were being done at prices above those observed in 2019. He said that some bigger deals earned themselves a premium because many investors wanted to invest sizeable chunks of money.
Larger deals usually spread the cost of transaction fees and often bring scope for more obvious operational economies of scale.
Pasley-Tyler went as far as to say the valuations, in some segments of the market, were high enough to prompt his company to be sellers rather than buyers.
Providers of the plentiful supplies of capital – aka ‘dry powder’ – are increasingly selective when it comes to sustainability, delegates heard. Investors are demanding that deals will meet their, and society’s, ESG (environmental, social and governance) priorities.
L+R’s Kirk observed hotel property values in London were bouncing back quickly. He said investor hopes on London properties were focussed on likely increases in capital value. He said properties in UK regions were safer because the rental yields tended to be higher.
The panellists agreed that hotel industry prospects were improving. Neil Kirk said 2019 conditions – broadly speaking – would return in 2023.
Pasley-Tyler, acknowledging that his day-to-day experience is of cities reliant on still-sluggish international travel, was more cautious. He said he was expecting it would be 2025 before business levels seen in 2019 would be re-established.
The panel discussion, entitled ‘Windfall or Shortfall’, was hosted by Pippa Harrison, director and head of the hotels capital market section of Avison Young.
Matt Lederer, hotel acquisitions director at Castleforge Partners, completed the line-up.