How to Secure your Hospitality Investment During COVID 19

To help understand the extent to which COVID-19 will impact a property, or group, hoteliers must first evaluate their position and develop plans at a corporate and property level. Hoteliers with a majority of their business originating from one travel market (like China or USA) need to diversify their marketing activities to attract new customers as soon as possible. It’s important when addressing the impacts of COVID-19 that hotel chains leverage on a balanced portfolio across the APAC region to mitigate the negative impacts in one country or another.

For individual hotels, the first impact of COVID-19 will be (or may already have been) felt via an increase in customer cancellations both for accommodation and events. For room bookings, offering guests different options like including a credit note or welcome-back packages can help to retain customers in the long-term. For meetings and events, hoteliers should liaise with the event organisers to postpone the event instead of accepting outright cancellations.

What does the future look like for the hotel industry? No one knows. One thing is for sure, it will be different. We expect to see many changes in cleaning and ventilation standards. Building codes will no doubt be impacted in the years to come. The way we think about F&B preparation and services could be forever altered as we explore giving guests touchless experiences.

How to Finance Your Operation During COVID 19. During this difficult period of time I highly recommend honest, polite, direct, frequent and professional communication with all your stakeholders. This includes your lender or loan servicer along with your corporate business attorney and certified public accountant, as well as your hotel franchise company and any third-party management company. It is always best to keep a friendly and professional relationship with them all.

When you approach them, you should convey your willingness to be flexible. For example, if they ask you to make some concessions, such as implementing specific cost-cutting measures, you should consider them. If you are experiencing a severe financial hardship, then you should consider picking up the phone and drafting a letter to request your existing lender or loan servicer significantly modify their loan terms to be more favorable for you and to reflect the new business realities of today and to also defer their monthly loan payments for six months. When a lender allows a deferment, this means they will add the skipped mortgage payments to the back end of the loan to be paid at the end of the loan term.

You might consider refinancing the existing debt on your hotel at a higher loan-to-value ratio and with a much lower interest rate and get “cash out” (harvest your equity) and redeploy that cash equity as needed. There are many standard loan programs available that can achieve this objective. Many owners have typically refinanced their hotels after several years of paying down debt to harvest their cash equity so they can purchase or develop more hotels.

In the case of COVID-19, owners can use this “refi with cash out” strategic financing option to produce working capital to fund operations during this lean period and get a much lower interest rate. A refinance is a good opportunity for a debt consolidation in which all of a hotel owner’s different debt obligations are paid off and consolidated and afterwards a hotel owner will have just one monthly loan payment with a much better interest rate.

Get a Partner In. Immediate family members, friends, relatives, people you know from your place of worship, chamber of commerce, hotel associations, hotel franchise companies, third-party management companies and even your business competitors are all good candidates to be considered to become your new partner. Your new partner or partners will be given a percentage of ownership commensurate with their cash investment or a negotiated amount. Each partner’s attorneys can work together to draw up the appropriate paperwork to create your new partnership. Be sure to ask your attorney and CPA whether a buy-sell agreement or a tag along-drag along agreement would be beneficial.

Sell your hotel. When hotel owners sell their hotels it frees up all cash equity from that asset to be used in any way they desire. Selling a hotel is always the ultimate financial liquidity event for that asset. However, it usually takes a year or more to properly market that hotel property and find a buyer who is willing to pay the right price unless the hotel owner already knows the buyer.

Whatever your decision, its important to put lives first and try as much as possible to weather this period as like any storm, it will all be over, and business will be back, but a little bit different.

For strategic assistance with reorganizing your assets to survive the Pandemic period, please get in touch with us on wilbert@interafricahospitality.co.za

Wilbert Frank – InterAfrica Hospitality Investments LLC email. Wilbert@interafricahospitality.co.za

Published by TMT Global

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