Hotel acquisition finance: what lenders want to see now

The structure that currently works

Loan-to-value between 55 and 65 per cent for leased assets with a strong operator, lower for management agreements or owner-operation. The gap to equity is frequently closed with a junior tranche or a co-investor.

Amortisation typically runs at two to three per cent per year plus a cash sweep. Covenants sit on debt service cover and leverage; for leases, additionally on rent cover out of the operator's GOP.

• Audited or at least reviewed operator accounts for three years
• Rent cover calculated from GOP, not from gross revenue
• FF&E reserve contractually fixed and modelled in the financing

Ramp-up and business plan

For repositioning, operator change or new openings, the financing stands or falls with the ramp-up. We always run three cases: plan, base and a stress case with RevPAR roughly fifteen per cent lower. Only when debt service is covered in the stress case is the lender conversation worth having.

An interest reserve for the first four to six quarters is effectively a precondition in ramp-up cases.

Where processes fail

Usually the lease: operator break rights, unclear repair obligations between structure and FF&E, a missing parent guarantee, or turnover rent without a minimum. All of these reliably deter lenders.

Second most common: the seller releases operating figures late. Understandable, but without operator data there is no term sheet. We solve it with staged disclosure under NDA so lender approach and due diligence run in parallel.