Hotel rescues start with stabilising the debt

Hotels have the chance of returning to pre-covid performance levels, but only if their capital base is properly restructured now, argues Eric Assimakopoulos, founder of Revetas Capital.

There is no question the global hospitality sector was set for a banner year coming into 2020. Global travel was at a peak after growing steadily over the past five years, thanks to globalisation and strong economic performance worldwide. Who would have imagined the industry would fall off a cliff within a few weeks?

Since it did, I have been trying to answer a number of questions about the hospitality sector. When will it recover? How do current owners survive, then thrive? What are the differences between this crisis and the global financial crisis in 2008 for the sector? Which hotels will survive? How will lenders and valuers consider the sector? How will the industry evolve? And, from a performance perspective, when will pre-covid levels return?

Undoubtedly, every hotel investor, banker and advisor is asking the same questions and more.

What I do know is the sector will recover. But first we need a vaccine that people and governments trust in so that borders can fully open. Airline travel must resume to a sustainable level, and if you believe the chief executives of the largest airlines, that will take three to four years. Corporates need to return to normal business travel and participation in meetings and events. We need to see the global economy return to a growth trajectory. All of this will take time; in my view, it will take three to five years to return to pre-covid economic conditions.

For hotel owners, a ‘survive to thrive’ strategy needs to be implemented. Key to this will be debt restructuring. The difference with the global financial crisis is that financing has dried up for the hospitality sector and will remain dry until the industry stabilises.

This poses challenges when valuing existing debt positions. We learned from the 2008 crisis the best path to preserve and recover value is through a structured solution with stakeholders and new capital. Existing lenders will need to restructure debt to sustainable levels. This does not necessarily mean writing off debt. Management companies also need to realign agreements with owners and stakeholders. Cashflow from operations will not be sufficient to service costs and the debt given occupancy and room rates are at record lows. Hotels need liquidity for capital expenditure, covid related improvements and operations.

The leading and best capitalised hotels will survive. Many, however, will not be sustainable and that will lead to significant repositioning opportunities.

Sustainable restructuring

If debt providers look to a structured solution and management companies realign agreements, then there is a steady ship to invest in. And with a sustainable restructuring in place, the hotel can be valued. This provides an alignment of interest and is the best way to preserve the value of a hotel and ensure its ability to thrive again.

This is also the best time to consider investing in sustainable improvements. That can be done together with the covid-related improvements and should have a lasting impact.

There is a real opportunity to make a difference and pivot towards environmentally friendly solutions throughout the hotel industry.

To capitalise on this moment and these themes, Revetas recently launched Strategic Hospitality Investment Partners, an investment vehicle for the sector. Our strategy is to partner with hotel owners and the lenders throughout Europe and the UK to provide capital for restructures and stabilisations so they ultimately thrive again. We hope our experience in hospitality and background in restructuring during the past few crisis will create significant value for all the stakeholders.

The hospitality sector will return to 2019 levels and potentially continue to grow beyond that. However, there is a lot of work to do now to ensure that there is support across the industry for high-quality owners and operators. It starts with the debt.

Eric Assimakopoulos is the founder of Revetas Capital, a real estate investment management platform with offices in London, Vienna and Luxembourg.

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