The honeymoon period after the relaxation of lockdown restrictions across the UK and the rest of Europe hasn’t lasted long.
Hospitality industry investors had been hopeful that the post-pandemic world might turn into the roaring twenties but with supply chain issues, inflation, interest rate rises and war in Ukraine all converging there is a sense that things could go downhill as the year progresses.
All this is prompting lenders to consider the terms they are offering, making sure they give themselves enough protection if the economy goes south, although hotels are seen as perhaps less risky than some other asset classes.
“I would say that we are starting to see a few more jitters in the lending market. With projections of interest rates, lenders are becoming much more focused on what kind of debt coverage they’re seeing and what the income stream looks like,” Safinaz Zakaria, principal at investment firm Crosstree Real Estate Partners said during a panel discussion at Speaking at a recent Bisnow event entitled London's Hotel Outlook.
While that might sound like alarm bells should be ringing, hotels are actually better placed because yields tend to be wider. Zakaria added that lenders were "much more focused on day one debt cover" a move driven partly by SONIA (Sterling Overnight Index Average) rate increases.
Luc Boschmans, managing director, hospitality investments, at Tristan Capital Partners, which has done a number of recent deals in the UK, said, at the same event, that he had noticed a couple of recent trends in the lending market.
The first being that the “the larger the transaction the easier it is more or less to have access to debt” and the second that “some lenders who are typically before only lending on luxury hotels are now also looking to midscale or budget hotels, I think that’s quite interesting. “
The number of lenders happy to lend for budget or midscale properties is only going to increase when the economy starts to turn.