Hotel project funding; An appraisal of Construction Loans.
The choice of optimal instruments for Hotel project funding and obtaining construction loans play a key role in the development of the hospitality and tourism business. The basis for the recovery and prosperity of this industry is the project financing of hotels and affordable long-term loans for the construction of new facilities or the reconstruction of existing ones.
Havelet Finance Limited, A Channel Island Finance, Loan and investment company with an international presence, is ready to offer your business long-term financing for the construction and modernization of hotels in Europe, the USA, Canada, Latin America, the Middle East and South and East Asia and Africa. We specialize in long-term loans, organization of project finance (PF) schemes, investment engineering, consulting and management of large projects. To find out more about our services and opportunities, read more here: https://www.havelet-finance.com/project-finance
Project Funding for construction of hotels: general information
In the first phase of Hotel business, Companies are often experience some perilous times in funding such projects. Most often, they don’t have experience in the industry, they don’t have a credit history, and they don’t even have adequate collateral. Obviously, before starting any capital-intensive project, it is critical to conduct a comprehensive study of the company and consult with the top management who plans to invest in the hotel. This work should address the possibility of obtaining funds to finance the project and analyze the most effective ways to attract them..
Financing of large projects in the hotel business can be carried out using a wide range of internal and external resources.
Equity capital can be generated as a result of current operating activities (for example, current income from other hotels, retained earnings, depreciation, sale of assets), as well as by increasing the company’s authorized capital. An increase in the authorized capital can be carried out through contributions of the owners or by attracting new partners (issue of new shares). An important way to raise capital is the cooperation of the hotel business with venture capital funds. Venture capital funds are involved in high-risk projects with above-average potential returns. As a rule, such projects are not accepted by large banks due to an excessively high level of risk.
The most common debt securities that serve as an instrument for funding the hotel business are bonds. Other securities that are used relatively rarely include bills of exchange and warrants. Bonds are securities issued in series, in which the issuer confirms the debt to the creditor and undertakes to perform a specific action in relation to him. Bonds come in different types depending on the type of issuer, maturity, face value, interest rate, additional options and ways to minimize the investment risk of a particular project.
Modern trends in hotel project finance
Financing the construction and modernization of hotels in different parts of the world has developed its own way for a long time, so the share of long-term loans, project finance and other instruments varies significantly in different countries. This should be taken into account when planning large projects and seeking funding sources. The developed countries of Europe are traditionally characterized by an orientation towards bank lending to the hotel business, as in other sectors. Until the mid-2010s, about 80% of European business finance came from banks and other lenders, according to the OECD, in stark contrast to the modest 30% of lending in business finance in the United States. The tightening of standards in the banking sector and the growth of the capital needs of the hotel business have been driving the evolution of the European model of hotel funding for a long time. Many companies are actively seeking alternative sources of funds by turning to the bond market and project finance (PF) instruments. Below we discuss these instruments in more detail, summarizing the available information on bonds and PF schemes for the hospitality sector
Growth of hotel finance project schemes.
In recent years, the concept of “project finance” has become increasingly popular in the context of finding sources of funds for large business projects in many industries. This method is mainly used in structured finance schemes, as well as for large projects that require complex contractual structures and are carried out in complex environments with many stakeholders. Experts identify certain features of project finance, although there is no generally accepted definition of Project Finance.
The PF scheme differs from other hotel funding instruments in that the only guarantee of debt repayment is the cash flow that the project will have to generate after its launch
With proper organization and implementation of project finance schemes, this cash flow should be sufficient to repay the debt. The strategic goal of the PF is to limit or completely eliminate recourse to the project initiators on the part of funding organizations. Traditionally, the Middle East, East Asia, North America and Latin America remain the focus of the global project finance market. This trend is supported mainly due to state participation in the financing of infrastructure and tourism facilities at the national level. After the global financial crisis that shook the world economy in 2007, there was a boom in project finance in the Asia-Pacific region and a proportional decline in the rest of the world, a trend that continued until the mid-2010s. In recent years, prior to the pandemic, many large hotel and tourist resort projects around the world were implemented under project finance. Subsequent events have greatly complicated the implementation of new projects due to unpredictability and the increased cost of capital. As more stringent regulations are introduced, the ability of financial institutions to engage in capital-intensive projects is shrinking, and companies have to dedicate a significant portion of their resources to comply with financial requirements imposed by regulators. The role of professional services of investment and financial consulting is increasing, and these services are urgently needed by companies today to arrange project funding for hotels.
The success of the project will largely depend on whether your company can obtain the necessary funding on adequate terms.
In general, the more effort a team puts into a hotel’s business plan and financial planning, the more detailed, substantiated and persuasive documents a company can provide to potential investors and lenders. A company that specializes in this type of consulting and has the knowledge, practice and ability to raise capital can help achieve this goal.
If you are interested in investment consulting and project finance services for hotel funding and construction loans, the teams of HAVELET FINANCE LIMITED is at your service at any time.