Hotel development finance
Funding for hotel and aparthotel schemes across the UK.
Funding hotels development
Hotel development is an operationally-led, trading-business sector. Lenders underwrite the location, the brand or operator, and the projected trading performance: occupancy, average daily rate and revenue per available room. A branded scheme with an established operator under a management or franchise agreement in a strong tourism or business location attracts the deepest appetite. Aparthotels, which blend hotel and serviced-apartment income, have grown rapidly and draw their own lender following.
We arrange finance for new-build hotels, aparthotels and hotel conversions, structured around the operating agreement and the trading projections. Leverage reflects the construction cost and the strength of the operational covenant. A vacant-possession value and a clear branded exit give lenders comfort on the downside.
Scheme types we fund
- Branded and franchised hotels
- Aparthotel and serviced-apartment schemes
- Boutique and independent hotels
- Hotel conversions and extensions
Indicative terms
- Loan to costUp to 60 to 65% senior
- Loan to GDVUp to 55 to 60%
- Key testsOperator, brand, location, trading
- ExitOperating lease, refinance or sale
Indicative only. Terms vary by lender, scheme and borrower and are not an offer of finance.
How we fund a hotel scheme
Hotels are funded on senior development finance against cost, with leverage shaped by the operating agreement and the trading projections rather than bricks alone. A branded scheme with a management or franchise agreement and a credible vacant-possession value supports competitive leverage. Mezzanine can lift the structure where trading projections are robust, and lenders often expect the developer to fund a meaningful equity layer given the trading risk.
Lender appetite for hotels
A specialist field of banks and debt funds backs hotel development, underwriting the operator and trading as much as the asset. Appetite is strongest for branded schemes with an established operator in a proven tourism or business location. Independent and boutique schemes are fundable with a credible operator and trading case, while speculative hotels without an operating agreement are difficult to place.
The exit
The exit is a sale of the operating hotel to a hotel investor or operator, or a refinance onto longer-term debt once the hotel is trading toward stabilised performance. Since trading ramps up over the first year or two of operation, a stabilisation loan often bridges the hotel from opening to stabilised trading before that exit. A clear branded operating model and a defensible vacant-possession value give lenders confidence in the downside as well as the exit.
Finance structures that suit this sector
- Senior development financeCore facility, leverage set by operator and trading.
- Stretch senior financeHigher leverage on branded, operator-backed schemes.
- Mezzanine financeTops up the structure where trading is strong.
- JV equityFunds equity on larger or portfolio hotel plays.
- Stabilisation financeBridges the hotel through its trading ramp to stabilised performance.
Fund a hotels scheme
A view on fundability within one working day.
How a hotel scheme is appraised
Hotel value is a trading-business calculation: it rests on projected occupancy, average daily rate and revenue per available room, capitalised at a hospitality yield, with a vacant-possession value as the downside. Lenders model the operator's trading projections, weigh the brand or franchise, and look for a margin that survives a slower trading ramp.
Indicative hotel finance rates and leverage
We arrange senior development finance for hotels to 60 to 65 percent of cost and 55 to 60 percent of value, with the operating agreement central to terms. Given trading risk, lenders expect a meaningful equity layer; a stabilisation facility bridges the trading ramp before a term refinance or sale.
Frequently asked questions
Do I need an operator to fund a hotel development?
An established operator or brand under a management or franchise agreement greatly strengthens the case. Lenders underwrite the trading covenant alongside the build, so the operating agreement is central to the terms available.
Are aparthotels funded like hotels?
Broadly, yes, but aparthotels blend hotel and serviced-apartment income, which some lenders view as more resilient. They have their own lender following and can attract competitive terms in strong city locations.
How much equity will a hotel scheme need?
Given the trading risk, lenders usually expect the developer to fund a meaningful equity layer, with senior debt around 60 to 65 percent of cost. Mezzanine can reduce that equity where the brand and trading projections are strong.
What trading metrics do lenders assess?
Occupancy, average daily rate and revenue per available room, benchmarked against comparable hotels in the location, together with the operator's track record and the strength of the brand or franchise.
Funding a hotels scheme?
Tell us about your development and we will come back with a view on fundability and likely terms.