Luxury London hotel scheme defies hospitality slump to secure finance

UK-focused Shiva Hotels is the latest owner and operator to source debt finance for a high-end development in the UK capital.

UK-based hotelier Shiva Hotels has sourced one of the largest development facilities for a central London hotel this year. The £230 million (€255 million) loan will fund the construction of the luxury Marylebone Lane Hotel.

The financing has been agreed despite widespread concerns over the future of the hospitality sector and construction projects coming under renewed scrutiny as a result.

“Covid-19 has understandably made accessing finance much more difficult, primarily due to the uncertain outlook,” Rishi Sachdev, managing director of Shiva Hotels, told Real Estate Capital. “That said, the underlying quality of the location and our development/operating track record helped position this as an attractive opportunity.”

The hotel owner and manager sourced the financing package from real estate investment firm Cale Street Investments and UK-focused property company Crosstree Real Estate Partners, which provided £160 million and £70 million, respectively. The facility has an initial four-year maturity, with the option to be extended, and refinances an £80 million loan previously in place with UK lender ICG Real Estate.

The loan will fund Shiva Hotels’ development programme for the property, in the Marylebone area, through to completion. Shiva acquired the site, which previously hosted an NCP-operated car park, in 2016. Work will begin imminently on site with the development of a 199-key luxury lifestyle hotel, which is set to open in early 2023. The hotel will feature destination restaurants, a rooftop swimming pool and a subterranean event space.

It is the latest luxury London hotel scheme to be financed this year, despite the ongoing crisis in the hospitality sector as a result of covid-19.

Constellation Hotels, owned by Qatar Holding, agreed a £340 million 10-year refinancing facility on 23 March against two five-star London hotels: the Connaught and the Berkeley. The deal was arranged by US bank Citigroup and debt was sourced from a consortium of lenders including Germany’s pbb Deutsche Pfandbriefbank and a UK-based debt fund.

In mid-April, Amsterdam-headquartered PPHE Hotel Group secured a £180 million syndicated facility for the development of the art’otel london hoxton, near Old Street in the east of the city, from Israeli lender Bank Hapoalim.

Shiva Hotels agreed heads of terms with the lenders in early March. According to Sachdev, the lenders were attracted to the scheme by “a combination of the long-term resilience of the central London market, alongside the quality of the scheme, specific location and our development experience”.

Sachdev said that sourcing finance for any type of asset has become harder: “Finance as a whole is much harder to come by, whilst some existing projects are also being reassessed. However, for the right scheme, there is finance available from a limited pool of funders.”

Despite uncertainty around the duration and extent of covid-19’s impact on the hospitality sector, Sachdev is confident about the London market’s long-term attractiveness: “We are steadfast in our conviction that the global appeal of London will continue and that this will translate into strong demand for carefully curated hotels in highly desirable locations.”