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on October 25, 2023
Hotels, accommodation, apartments... Why is it so difficult to finance these accommodation projects?
Although the brand pattern of the standard hotel in the domestic accommodation industry has been determined, the disputes between the brands on non-standard, scale, and joining have not stopped. But at present, it is not the brand policy and the willingness to join, but where the start-up capital of the project comes from. The deeper problem is that although the brand has a strong membership system and has its own traffic, its project is still difficult to have a single breakthrough. After receiving the initial capital, where does the project flow come from?
Investor thirst for capital
"Pledge the right to operate, use another Chinese trading limited company as a guarantee liability company, borrow 3 years, the amount of 3 million, 15% annual interest." The brand has been able to give social support to 5 million non-cash management loan enterprises including decoration, furniture, linen, etc. "This is because a student has signed a contract with a mid-range brand investor who is seeking start-up capital financing for a construction project.
However, even if the investor made such a condition that the agent would walk away with multiple capital, still no one would lend $3 million. "The $3 million figure is not much for the owners and they are reluctant to take it on, mainly because of the uncertainty over the project's ability to operate. At the same time, zero parties did not take advantage of the hotel's operating experience, if the other party cannot repay the loan, the management will be mortgaged to the management, the management will not be able to activate the project, but also do the transfer of management rights, "the project agent told TBO.
"I've also looked for small and medium-sized accommodation brands that are doing well, but these brands are usually not interested in earning $3 million a year in interest." They can give them very favorable loan policies, but only if they change the brand." The project agent said that although I understand the idea of these small and medium-sized accommodation brand managers, the project has taken a non-cash loan of 5 million from the brand they joined, and signed a letter of intent at the same time, and it is unrealistic to change the brand.
There are many similar cases in the accommodation industry.
On the other hand, investors are generally not undercapitalized. Some investors focused on the accommodation industry, in the first 10 years of the rapid development of economy hotels, have enjoyed the dividend period, completed the accumulation, and hold a large number of investors' sufficient funds.
But so do these well-funded investors. We need a project company for financing. Because, following several major economic chain brands along the way, investors' understanding of the accommodation industry itself and awareness of risk management prevention issues are also upgrading, from the perspective of optimizing the allocation of resources and assets structure can be considered, it is not rational to bet too much on a single project.
In fact, compared with the continuous decline of the real economy, stable cash flow, and relatively stable returns in the accommodation industry, investment is still the preferred choice to hedge against inflation. But the long return cycle also makes investors reluctant to commit too much liquidity to one-off housing projects.
"At the end of the day, it's a psychological barrier. Especially for these small and medium-sized investors, who have finally climbed into the middle class. If leverage is used well, they can certainly continue to develop, but in case any project operation error will be directly hit back to the original, they are impulsive and cautious. "Mr. Feng, the partner of Hotel Property Network, is ridiculous.
On the other hand, some investors are operating internationally in the upstream supply chain industries of the accommodation industry, such as linen washing and furniture decoration. Prior to this, they may not have any investment experience in the accommodation sector at all, and unlike traditional investors who have other operational projects that can be used for blood transfusions, most of these marginal or even cross-border investors have urgent financing needs, but they find it difficult to bear the high cost of equity financing.
Poor financing environment
With the update of investors' concepts and the tightening of financial institutions' lending, how to raise funds with lower risks and complete the process from signing properties to actual operation as much as possible within the expected period has become a thorny issue for many investors and brands.
As Hou Feng, executive president of New Century Hotel Enterprise Group, said before, "Hotel management assets are heavy assets, it is difficult to live, in the past, mortgage methods can be directly financed, but for the current asset risk assessment of Chinese banks, not students through the analysis of asset quality assessment how much value to open up financing channels, but how much cash flow and profit hotel assets to measure." Now there are many studies on traditional Chinese hotels if they want to raise money, they can do more things with capital, but the financing channels are actually very difficult."
A brand apartment operator in Shanghai told TBO that the consequence of apartment brand renovation and transformation is that with the expansion of "heavy assets" such as scale, furniture and home appliances, apartment enterprises cannot afford it. However, at present, most investment institutions tend to be cautious and rational, and are only willing to take the "equity + debt" investment mode, and there are specific requirements for gambling, equity pledge, and founder guarantee in performance.
Xiaoyu (a pseudonym), the operator of B&B, believes that although some B&B brands have received financing at present, the amount of capital is not large. Set up a formal operation team, a few projects down, there will still be new capital in, but it will dilute part of the equity. If it is a single project, most of the money is raised from friends around, but many project sponsors themselves do not have very mature financial experience. Getting a loan from a bank is even harder.
The hotel property rights network partner Mr. Feng gave a more detailed introduction. "Banks issue mortgages at a standard annualised rate of just over 5 per cent, but it is basically impossible for smes to lend. If equities are to be used as collateral for social financing, mainstream institutions typically currently offer interest rates of just over 12 per cent. Loans are usually for six months or a year. With the current normal return on investment period of five years, how can such a short capital use period meet the investment needs of the accommodation industry as a long-term return?"
Looking at the current investment situation in the industry, the general feeling in the industry is that the cost of investment is increasing. However, the current loan policy and financing channels are still lacking, and the cost of using funds caused by high leverage has risen significantly. In addition, the use of funds is short, continuous repayment pressure will continue to increase the risk of capital chain break. When the industry returns to rationality, financing difficulties will become inevitable.
Investors have difficulties in raising funds, and the brand side naturally sees it in the eye. And to some extent, its relevance to investors to provide funds may not be weaker than the investors themselves, from an objective point of view, more people are students out of such a culture of mutual learning achievements.
"The value of an individual's accommodation is relatively fixed, whereas the value of a group can only be realized once it reaches a certain scale." Li Chenrong, chairman of China Tourism Hong Kong, said that this represents the consensus of the industry, and the core driving force for all accommodation brands is to increase the number of stores opened, seize high-quality properties, and expand coverage density.
Based on this core value appeal of enterprises in China, or publicly or privately, a number of accommodation service brands have adopted a "help work plan" for investors. But even so, the "help plan" still can not release too many investors' money management pressure.
"The brand is not a charity. For those mainstream investors, the brand has already earned, and some investors' funds can be partially solved. However, the Group is generally willing to provide guarantees only if at least one investor must provide guarantees in an operational accommodation format, otherwise the Group will not assume the risk of the loan. "In the view of Mr. Feng, partner of hotel property rights network, the review mechanism of accommodation brands for subsidies has directly screened out some marginal investors."
On the other hand, hotel groups are not financial institutions and their own liquidity is relatively limited. For the current project investment cost of tens of millions, the group's financial assistance effect is indeed limited. The fact is that the brand will have a series of strict business assessment and property screening mechanisms. If the expected assessment is not satisfactory, the Group will still exercise restraint.
An investor Chu Qiao (a pseudonym) introduced to TBO, "If our project is feasible, usually in this case, a country invests 15 million projects, the brand will generally provide between 5 million and 7 million fees." This management cost can not be 100% provided by the development of the Chinese brand itself, perhaps to find some of their own cooperative learning partners, but the ultimate goal is to improve the brand in the name of investment. The other is through non-cash ways, such as decoration, furniture and other suppliers, the brand will try to use a third party in exchange for economic resources under the premise of ensuring the quality of service."