Dip in bank financing
Seek funding from other sources, like private equity funds, hoteliers have been told in the face of reduced levels of bank financing.
This recommendation comes from CIBC FirstCaribbean International Bank’s hospitality sector specialist team which noted that due to the economic slowdown, available financing to the hospitality sector has dwindled, particularly for new construction projects.
According to an article in Terra Caribbean’s 2012 Red Book, which was launched last Thursday, banks became more selective in their lending and imposed stringent guidelines.
“With recovery progressing and investors’ interest in the region increasing, banks are slowly beginning to provide funding for acquisitions, renovation and repositioning of properties, and on a very selective basis, new construction,” the team said.
However, the article noted that banks are more inclined to lend to “existing clientele and to experienced sponsors with excellent track records, a talented management team and sufficient equity with lower leverage positions than previously anticipated”.
Although alternative forms of financing may be more expensive than bank financing, the team said hoteliers should seek out equity partners with specific strategic objectives that can add value over and above the funding provided.
The bank said growth is expected to return to Barbados’ hospitality and tourism industry over the next 12 to 24 months as recoveries continue in the main source markets.
“The good news for hoteliers is that in the past, room supply had typically outpaced demand but due to the decline in active projects, demand is steadily catching up with supply and over the next few years, additional supply is forecast to be minimal given the high cost of entry.
“This has a positive effect on occupancy levels and bodes well for existing hoteliers,” it said.