Source: HVS - 14 December 2012
Germany is receiving continuous interest from the international and national hotel investment and lending community, according to an exclusive survey of the major German financial institutions undertaken by global consultancy HVS London. The survey quizzed banks on their lending parameters in the hotel sector for new loans and refinancing, loan characteristics and the future outlook on lending criteria.
“Our annual survey of German banks indicates a healthy appetite for hotel investment if their lending criteria and parameters are met,” commented report co-author Arlett Oehmichen, associate director, HVS London. “Financiers are not giving money away and remain prudent, but for the right transaction a proper amount of debt is available at the right price.”
Upscale hotels were most favoured by potential lenders, followed by economy and midscale with food and beverage outlets. Luxury and midscale without food and beverage outlets have received the least amount of borrowing from the banks surveyed.
Location was considered important, as was re-usability of the property. Historical and projected net operating income and average rate and occupancy were also deemed important in determining the loan terms, as were the existence of personal and management guarantees, along with the borrowers’ track record and solvency.
The survey revealed that German banks are more comfortable lending on hotel leases, rather than management agreements, although traditional fixed leases are now being replaced by hybrid lease structures that are a mix of revenue-based variable rent and fixed base rent.
Some 45% of loan proceeds from investors currently fund acquisitions, with refinancing representing 30% of loans across branded and independent hotels. Renovation and new construction receives the lowest level of financing, in line with other European countries.
The survey results confirm that there is less financing for new developments or independent hotels, but investors didn’t rule out financing new builds altogether. Only 25% of lenders indicated that there were no loans available for new branded developments, while 60% of respondents said they did not lend on independent or unaffiliated developments.
In terms of loan-to-value (LTV), some 40% of lenders said it would remain largely the same, while 10-20% said that LTVs, the number of loans and the amount per loan would increase over the coming years.
However, the majority of lenders were pessimistic in their outlook for the number of loans and the volume of loans likely to be available in the future. This sentiment reflects the continual restraint of bank lending for hotel developments, not only in Germany, but throughout Europe.
“While lending will not get back to historical levels in the short term, and arguably the medium term, hotel investors and developers are getting more creative with regards to filling this gap,” added Arlett Oehmichen.
German Bank Survey – there is money for hotel lending! by Luisa Pott and Arlett Oehmichen can be downloaded at www.hvs.com/Library/Articles.