A recent Altrex article revealed what are the main problems that hotel investors are facing today in the context of refinancing operations. Over the past two weeks, a series of shocks around the world has sparked worries of another financial crisis. The collapse of Silicon Valley Bank and Credit Suisse, persistent inflation and rising interest rates are all causes for concern. All of this is easily traced back to the commercial real estate sector, which could be next to suffer. Among the concerns is that anyone looking to refinance in 2023 will find prices markedly higher than in 2018. A report by Bayes Business School in London analyzing commercial property lending in Europe says that current rates reflect rates of interest on variable loans from 4% in Europe and 6% in the UK for prime quality stable assets.

The increase is due to the constant increase in the Euribor and Sonia rates over the last year. Brien Giuntini, partner at Cushman and Wakefield, said this means for hotel investors that lenders will be more demanding and selective, and that the overall cost of debt over the past couple of years has certainly dented profits, and it is unlikely that margins or cost of capital improve in the short to medium term. Lenders have also started reducing the LTV (Loan to Value) they offer to protect their interest coverage ratios. In the hotel sector, there has been a reduction in the senior LTV to around 50% from 55-60% previously and the total cost of debt has doubled from 3.5-4% at the end of 2021 to the current 7 -8%. Chris Gow, adviser to CBRE, said that while some hotel lenders have not resumed new lending post-Covid and the lender universe is narrower as a result, hotels remain an asset for many banks and alternative lenders. interesting class.

Despite everything, the demand that characterizes the hospitality sector is capable of reassuring during these situations of macroeconomic uncertainty: even during the pandemic, the desire to travel has remained constant, and hotels have confirmed that they are able to adapt to inflation increasing the ADR, without impacting bookings. This track record, Giuntini says, makes it much easier to obtain financing, especially if the debt multiples are based on the previous 12 months.