Asset classes
Hotel acquisition finance: what banks want to see today
Operator covenant, rent cover and a realistic ramp-up are central review points — price per key alone does not carry the financing.
Hotel acquisitions are financeable, but the review has moved closer to operations. The central question is whether the business covers debt service — including in a weaker year. Price per key remains a comparison metric but does not replace that review.
Approaching lenders with this perspective usually produces reliable feedback faster.
What lenders look at
Leverage, amortisation and covenants depend on the asset, operator structure, market and lender; universal ratios cannot be stated credibly. Regularly relevant are operator covenant, contract type, remaining term, rent cover, investment requirement and the quality of operating data.
Combinations of senior financing with additional elements such as junior capital or co-investors are common. Covenants are frequently set on debt service cover and leverage, and for leases additionally on rent cover from GOP.
- Reviewed or audited operator figures across several years
- Rent cover calculated from GOP, not from gross revenue
- FF&E reserve contractually agreed and reflected in the financing model
Ramp-up and business plan
For repositionings, operator changes or new openings, the financing stands or falls with the ramp-up. We always model several scenarios including a stress case with reduced RevPAR. Only once debt service is covered in the stress case does the lender approach become robust.
An interest reserve for the ramp-up phase is often part of the structure in such cases. It ties up equity but can avoid discussions about additional funding during operations.
Where processes stall
Frequently on the lease: operator termination and special rights, an unclear split of maintenance obligations between structure and inventory, missing parent company security, or a turnover rent without a minimum. The legal assessment of such clauses belongs with the legal advisers; on the financing side they are regularly a discussion point.
A second common reason: operating figures are released late. Without operator data there is no term sheet. We solve this with staged disclosure under NDA so that lender approach and due diligence can run in parallel.
Timetable
The lead time required depends on document quality, structure and the parties involved. What matters is approaching lenders in parallel with the purchase process, not only after signing an exclusive window.
In short
What is financed is the business, not the building alone. Operator figures, rent cover and a stressed ramp-up belong on the table early.
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