Raising hotel equity is a highly sought-after service throughout the African hospitality market. As often is the case, a hotel project promoter owns a piece of land and seeks assistance with raising hotel equity and debt, as he/she does not have sufficient equity to complete the hotel development. The process of raising hotel equity needs to take place before the promoter attempts to raise debt. This is because banks won’t lend money unless the sufficient and successful raising of hotel equity has taken place.
Raising hotel equity is a more difficult process than raising hotel debt, because when a hotel’s performance starts to drop and the hotel loses value, the first stakeholders to lose value are the shareholders, i.e. the stakeholders that originally raised the hotel equity. These stakeholders are the most at risk of losing their capital, should a hotel project fail to perform. The people that raise hotel equity need to be very familiar with the hotel project before providing equity. This familiarity comes from using experienced consultants, like HTI Consulting, to perform feasibility studies and due diligence services to assist with the process of raising hotel equity and hotel debt.
To assist with the process of raising hotel equity, HTI Consulting is also in a position to further assist hotel project promoters with the introductions to and brokerage arrangements with hotel equity providers that are operating in the African hospitality market. There are a few of these in the market, but more are slowly entering it.
What is commonly seen during the process of raising hotel equity is equity providers following a certain international hotel operator/brand. These equity providers are in the market to assist with the development pipeline of certain brands on the African continent and give those brands a competitive edge against other brands insofar as successfully branding a property. The equity raising process can, therefore, be linked to the hotel operator selection process.
HTI Consulting is well placed to advise clients on raising hotel equity as long as the hotel project promoter has sufficient hotel development experience and also has some funds of their own in place (in addition to the land), as well as the existence of an experienced team that can deliver the project according to budget and on time.