LONDON—While the debt market continues to loosen in the U.S., European banks are painting a different picture overseas. The hotel investment picture remains bleak as banks continue to be stingy with their lending terms.
“Debt finance just has not come back in Europe,” said Russell Kett, managing director of HVS London. “While it has thawed in the U.S., by no means is there the same level of enthusiasm by European banks to lend.”
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Russell Kett
managing director
HVS London
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Kett hopes to get some live finance success stories as he moderates an ownership panel during the upcoming Hotel Investment Conference Europe, during which he’ll lead “The view from the top: The owners perspective and outlook for hotel investment in Europe.” The conference, or Hot.E, is scheduled for 6-8 September 2011 at the Park Plaza Riverbank in London.
Kett said hotel owners have got to things differently than in years past to get acquisition or development deals done. Most importantly, even the most respected, experienced owners have got to be prepared to bring more equity to the table.
“If they’re doing deals, then they’re having to (provide more cash),” Kett said.
He outlined other specifications to obtain debt in Europe. For banks to say ‘yes,’ Kett said, they’ve got to have prior relationships with the borrower.
“If it’s in dead-central London and you’ve got a positive business plan when you stress test it,” he said. “In other words, you have to jump through hoops.”
Kett said common lending terms in Europe are 55% to 60% loan-to-value … and that’s with everything passing a stress test.
“If everything is pointing in the right direction, then they wait for the wind,” Kett said.
Even though Europe has been known as an independent-heavy region, hotel developers will have a tough time raising equity without a brand behind their project. “Most hotel deals require a brand,” he said.
In terms of new supply in Europe, Kett said it’s not completely dried up, but the number of projects in the pipeline is dramatically down from years past. This is a positive sign for European hoteliers because there won’t be much new supply coming in when demand grows. “We’re not going to be working our way through a backlog,” he said.
European demand generators
While European countries have always relied on travelers from neighboring countries within the region, now hotels can look more to outside sources, such as China and India. China is becoming a magnet for demand throughout the world, Kett said.
“And that’s going to continue for many years, thank God,” he said. “The middle class gives China growing power ... and together with India, the countries pose a very bright future. Not just leisure travel, its convention and business demand as well.”
Some corporate demand is coming back, Kett said, meaning conference demand most likely will follow.
In terms of international investment into Europe, Kett said he’s seeing more interest from the Far East.
London market
London, as well as other venues throughout England, are gearing up for an eventful 2012, including London’s hosting of the 2012 Summer Olympics. Because London is a mature market, though, the Olympics haven’t had the same effect on supply growth as other cities that have hosted the games.
“There is a limited amount of supply growth, but it hasn’t been excessive,” Kett said.
HVS is taking a “slightly jaundice” view, hoping that even though the Olympics might not bring hoards of guests, it will put London on center stage and will attract visitors down the road.
“If they won’t come to London for the Olympics, then hopefully they’ll come at another time, Kett said.
He pointed to the Royal Wedding, where demand was actually down. Kett attributed decreases in demand to the fact the Royal Wedding was an extra public holiday. Although many Europeans preferred to stay home and watch the event, the wedding “helped to advertise London and got people to think, ‘Well may be I will go to London,’” he said.
