Equity raising is highly sought after throughout the African hospitality market. As often is the case, a hotel project promoter owns a piece of land and seeks assistance with raising equity and debt, as he/she does not have sufficient equity to complete the hotel development. The process of equity raising needs to take place before the hotel project promoter attempts to raise debt. This is because banks won’t lend money unless sufficient and successful equity raising has taken place.
Raising equity is a more difficult process than raising 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 equity. These stakeholders are the most at risk of losing capital, should a hotel project fail to perform. The providers of hotel equity raising need to be very familiar with a 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.
To assist with the hotel equity raising process, HTI Consulting is also in a position to further assist project promoters with 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, and even more that are slowly entering it.
What is commonly seen during the hotel equity raising process 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 to give those brands a competitive edge against other brands insofar as successfully branding a property. Therefore, the equity raising process can be linked to the hotel operator selection process.
HTI Consulting is well positioned to advise on the hotel equity raising process as long as the hotel project promoter has sufficient hotel development experience and also has some funds in place (on top of the land), as well as the existence of an experienced and professional team that can deliver the project according to budget and on time.