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Hotel Investment in France: the funding bottleneck

The situation appears bleak for hotel investment projects. The results of a survey conducted by Hospitality ON with Olakala unsurprisingly reveal the difficulties that French professionals have investing: 92% of hoteliers surveyed believe that the current context is unfavorable to investment.Those who are able to pursue investment despite the current economic climate find themselves facing the problem of financing.The survey results show that very few French hoteliers are able to find external financing and that they don't necessarily have the instinct to work with market capital (pension funds, private equity funds dedicated to hospitality...), particularly independents. In fact, only 2% of respondants who invest have gone through this option to finance their projects.The consequence: to invest, French independent hoteliers have to dip into their own funds, or turn to the banks. However, loans are not a solution for everyone considering the current reluctance of banks, rarely willing to lend beyond 30% to 35% of the committed amounts, according to the survey results. With regard to the repayment of bank loans, a large majority of hoteliers (over 70% of respondents) say they pay interest rates ranging from 3% to 5%, reasonable rates, but on limited amounts that may be insufficient to carry out the substantial investment necessary for the works (for example, to comply with heavy regulatory requirements that enter into force in France in 2015). While taking on debt is widely practiced (46% of respondents), it is often insufficient when investments involve large amounts.To complete their projects, French hoteliers often have to dip into their own reserves to 100% self-finance their investments (38% of investing respondents). This is complicated by having had a depressed market for several years, which had an impact on the cash flow of some establishments that are now finding themselves unable to invest sufficiently to prepare for the future.The reluctance of banks and the lack of external funding create an unfavorable environment for hotel investments and block today's market.


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