Hotel management and advisory firm Michels & Taylor is launching a mezzanine fund to support hotels “facing liquidity challenges”, with some £200m to place from its first tranche.
M&T’s hotel support fund is thought to be the first product that is dedicated solely to hotel businesses in the UK and continental Europe.
The fund, which will also look at senior debt, offers loans ranging between £5m and £50m on two- to five-year terms, with loan-to-value ratios of up to 80%.
Hugh Taylor, chief executive of M&T, tells EG that its average loan values will likely end up falling between £10m and £30m, although it is not restricted on the number of deals it can do.
Taylor emphasised that the offer is not intended to be a distressed asset fund, or as a loan-to-own strategy. “We are not trying to go into assets that are clearly distressed to a point where they are in danger of falling over,” he said.
Taylor added that it is aimed at businesses that were strong before the pandemic that have “significant liquidity challenges today, that are going to be strong again”.
“Our judgment will be made on that premise,” said Taylor. “It is designed to be a reasonable and attractive solution that [hotel owners] cannot get on the high street or with existing lenders, but will allow them to survive and flourish over the next three to five years.”
The fund has received capital commitments from a “small number of prime lenders”, who have not been named but are “very experienced” in hotel investment.
“We have spoken to brands and at length to all the major banks in the sector, and [feedback] has been very positive,” said Taylor.
He said the fund has been created in anticipation of a wave of demand to come next year.
“Businesses have been taking government support – the banks aren’t enforcing, but supporting their clients,” said Taylor.
“They are in a different position to where they were in 2008 in terms of their exposure, and consequently there hasn’t been an immediate necessity, from March to date, for this type of solution to come into play.
“We expect in Q1 onwards, across 2021 and 2022, that will change and the stagnation will start to be replaced by activity from hotel stakeholders, where this type of product becomes relevant.”
It is the first time M&T, which has more than 23 hotels under management, has offered a debt fund.
“It was logical, given the capital that surrounds our business and the partnerships that we have, to look at what’s required at this stage, over and above what we can do ourselves,” said Taylor.
“It is coming to that point when this product is going to be very beneficial to the industry and we believe a number of businesses may well wish to work with us on it.”
M&T was founded by Taylor and former Hilton Group chief executive Sir David Michels in 2009.
Pick up this week’s issue of EG for an in-depth interview with Sir David Michels
To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette
