Between 11 and 12 September, more than 1,000 senior representatives from across the UK hospitality industry will head to Manchester for the Annual Hotel Conference (AHC).
This year’s speakers include: broadcaster and chef patron at La Gavroche Michel Roux Jr as well as senior representatives from Blackstone, Whitbread, KSL Capital Partners, and more.
The following interview is part of a series aimed at bringing you a flavour of the conversations you can expect on stage, highlighting some of the big-picture trends and themes ahead of the event.
Register now to make sure you don’t miss out.
With interest rates rising across the world, debt is now much more expensive than it was only a year or two ago. The impact of this shift has been a slow-down in the transaction market as buyers struggled to secure financing.
In the wake of the pandemic, many lenders stepped back from hospitality but some have continued to support the sector.
Leumi UK is one of those businesses and we recently caught up with Louise Gillon, head of hotel finance, to discuss the current state of play in the market.
Hospitality Investor: Debt has become a lot more expensive over the past couple of years. How has this impacted the lending landscape?
Louise Gillon: It’s unavoidable that higher interest rates have increased the cost of debt, but it is a known quantity – one amongst many changing factors in the financial equation between lenders and clients.
It has required both parties readjust to the new landscape, but many businesses will have a sufficiently long-term perspective, particularly when it comes to real assets, that increased debt costs can be absorbed into existing plans. Indeed, taking an even longer-term view, it is the near-zero interest rates of the last decade that are the aberration – you could argue that we’re now returning to a more ‘normal’ scenario.
Still, many hoteliers will face challenges when refinancing. While hotels and hospitality haven’t been impacted as much as other real estate sectors in terms of refinancing risk, it is specialist lenders that are particularly well suited to step in and advise on refinancing or restructuring, given their sector-specific expertise, greater flexibility, and in our case, our long track record in the market.
Hospitality Investor: Leumi UK has become one of the most active lenders in the hospitality space. Why do you think this is?
Louise Gillon: Across the company, we pride ourselves on the teams’ inside-out knowledge of their specialist sectors – and this is particularly true of our Hotel Finance desk. This has been clear to potential new clients when we’re in a room together, and it makes it much easier to communicate the value of our services.
The level of activity is also due to our long-term approach to our clients – in many cases the deals we have agreed are the latest in a long line of transactions with a particular customer. It also helps that we see a strong future in the hotels and hospitality space, which has been through a rough patch, but we now believe many assets have an extremely convincing long-term outlook.
This customer-first outlook has helped us earn the reputation as one of the most committed lenders in the sector – where others have withdrawn when times get tough, we’ve stuck it out, and the market has made a note.
Still, our relationships aren’t simply static. Our underwriting strategy reflects what a dynamic business needs rather than being rigidly structured based on past performance.
Hospitality Investor: Have you seen any changes in the way investors are approaching you?
Louise Gillon: Investors are going to greater lengths to show they have mitigated financial risks, particularly as squeezed margins leave less room for manoeuvre. But this does depend on the asset. City-centre, boutique and luxury hotels have so far proved an effective inflation hedge, with occupancy, ADR and RevPAR all looking healthy. Ultimately, each lending decision is made on a case-by-case basis depending on the dynamics of the individual business – so a more considered plan to avoid risks is never unwelcome.
Hospitality Investor: As an active lender you’re obviously confident in the outlook for hospitality. What statistics or trends underpin this?
Louise Gillon: Across Europe, strong ADR growth has been offsetting the higher labour costs and supply chain issues that have presented a problem for many hoteliers. And in the UK in particular, RevPAR jumped by 66 percent in London and 25 percent in the regions in the first quarter of the year compared to 2022. While energy costs were perhaps the biggest headache for operational costs over the last year, prices are now looking to be edging back down, which will be cause for celebration amongst many hoteliers.
Hospitality Investor: The theme of this year's event is ‘Adapt to Thrive’, can you give me one example in your business or otherwise, where a new and innovate strategy has been implemented to capitalise on an emerging market opportunity?
Louise Gillon: Many investors and lenders needed to perform a complete about-turn in their strategy during the pandemic, given the complete shutdown of international tourism, but as Covid-19 retreats ever further into the rear-view mirror, options are now open again. For Leumi UK, our core targets pre-pandemic – city centre, luxury and boutique hotels – have now again proved an extremely successful segment of the market and a defensive inflation hedge.
If anything, we have encouraged hoteliers to refocus their business on core competencies as more and more travellers realise the pitfalls of short-term holiday letting platforms. Many hotels’ adaptations – such as by introducing co-working spaces or pivoting into co-living – are now proving a hindrance rather than a help. Sometimes, it’s best to focus on what you’re good at.
Louise Gillon will be speaking on a panel entitled: To Buy, Build or Refi: Mapping the UK Debt Landscape at this year's AHC.
Stay tuned for more preview interviews and if you still haven’t registered yet, you can do so here. You can also view the latest programme, here.