Education for all key to securing independent debt
 
Education for all key to securing independent debt
25 OCTOBER 2016 7:55 AM

With an increased ownership base largely unsophisticated in the way of hotels, securing debt for independent properties requires evolving education.

LONDON—A surge in summer business, partly due to staycations resulting from worsening pound sterling exchange rates, led independent hotels in the United Kingdom to generally outperform brands. But sources said it’s done little to loosen bank and investor purse strings for the sector.

Panelists discussed debt at last week’s Independent Hotel Show during a session titled “Show me the money.”

Diane Scott, business development director of Lloyds Bank, said the most important lending criteria hasn’t changed. For debt to be given, she said, the opportunity has to be right and the management team must be proven.

“We’re still lending,” she said, “(but) there’s a huge amount of competition in the marketplace, with many lenders not traditional bankers.”

Most High Street lenders feel the same, said Alastair Hockley, director of hotel valuations at consulting firm Christie & Co.

Charles Scudamore, principal and founder of Hetherley Capital Partners, said his learning curve has taught him not to lean on the banks more than they felt comfortable with.

“Initially banks were cautious, now a little looser, but we still do not push and fill (any) equity gap,” he said.

Nontraditional avenues
The three hoteliers on the panel saw things a little differently.

Oliver Heywood, co-founder of Flat Cap Hotels and associate director of hotel investment and development for real estate consultant Cushman & Wakefield, said independent hoteliers are looking increasingly at nontraditional avenues of funding.

Crowdfunding is at least getting a glance, even if it is not for everyone, panelists said.

“(For one property) we were looking at other funding … as we already had slug capital, some 30%. But then we did find one investor who just said he believed in us, the business plan and track record, so we could cancel the crowdfunding,” Heywood said.

The cost of crowdfunding, he said, is “giving away 8% equity and a fee.” The number of United Kingdom crowdfunding campaigns that are 100% funded is very small, he added.

Alex Clarke, owner-operator of The George in Rye in Sussex, said he prefers to raise his own equity, but flexibility is always a good thing.

Nicholas Dickinson, owner of Congham Hall, in Norfolk, said he is wary of raising debt.

“I have earned a lot of money for banks, but when I was looking for debt for Congham Hall, they said no. The point behind that is I took the relationship for granted,” Dickinson said, adding that crowdfunding should be considered only after slug capital comes from one’s own pockets or private investment sources.

Education for all
As the independent sector continues to attract new owners, education is needed now more than ever, panelists said.

Owners, hoteliers and investors seeking debt on top of their equity also need to understand that banks have the necessary expertise and awareness of business holds and plans, sources said.

Dickinson said contacts with guests during his five years at Oxfordshire hotel Le Manoir aux Quat’Saisons held him in good stead.

“I had a fear of going to the big boys, which made me work hard for my little part of the equity,” he said. “My message to investors was ‘You put your money in, I’ll put my life in, and we’ll do 50-50.’”

One difference between searching for debt with a bank and with investors is due diligence, panelists said.

“Anyone coming to us would have done their fair share of due diligence,” Scott said.

But Heywood said there are some possible hang-ups with this train of thought.

“You cannot do due diligence on your investors,” he said. “You can ask, but they need not respond, while they can tear apart your valuations and business plans.”

Scudamore said it’s important for owners and hoteliers to identify “someone in the bank who understands hotels, and then nurture that relationship so you know who to call.”

“And have resilience, lots of resilience. You have to kiss a lot of frogs,” he added.

A well-rounded GM who is able to take an independent hotel to the next level should have no trouble getting the attention of bankers, panelists agreed.

Scott added that owners should not hesitate to replace a GM who is not working out. Scudamore said the quality of independent GMs continues to trouble the segment.

“Some GMs might be good at sales and marketing, but not so hot on finance. The lack of good GMs is a major disruption,” Scudamore said.

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