Marcus Emadi | Director at Turning Point Capital
CONTENTS
Hospitality Financing: Positioned for a Comeback
In 2025, the hospitality sector is regaining momentum. Despite macroeconomic headwinds, investor confidence is gradually improving—driven by the normalisation of travel demand, stabilising valuations, and rising interest from private lenders seeking yield and complexity premiums.
At Turning Point Capital, we view this environment as an inflection point for hotel finance. Dislocation in the lending market, coupled with structural recovery in hospitality, creates a prime opportunity for nimble, credit-focused investors.
Operational Real Estate at the Forefront
Investors are increasingly targeting operational real estate—assets like hotels, datacentres, and build-to-rent—where value and income are linked not just to lease contracts but to the performance of an underlying operator.
In 2024, UK operational real estate investment averaged £1.5 billion per quarter—a figure expected to grow in 2025. Hotels, in particular, are benefitting from this shift, drawing private capital back into the fold as institutional sponsors look to refinance, reposition, and scale high-quality assets.
Private Credit: Filling the Financing Gap
While some traditional banks cautiously re-entered the real estate debt market in 2024, many remain risk-averse. This retreat has created financing gaps—particularly for transitional or value-add hotel deals—that private credit funds are increasingly stepping in to fill.
Private lenders offer:
- Speed of execution
- Customised loan structures
- Flexible covenants
- Capex funding lines
- Operator-sensitive underwriting
Recent examples underscore this trend:
- £310m refinancing of Shiva’s BoTree Hotel (London) by BlueWater Capital and NorthWall Capital (Feb 2025)
- £152m refinancing of MUI Group’s Corus Hyde Park Hotel by ESR Europe (July 2024)
Both deals included dedicated capital expenditure lines to support upgrades, a hallmark of value-add hotel financing.
Six Key Considerations for Hotel Lenders in 2025
1. Asset Type and Brand Affiliation
Lenders must assess whether the hotel is branded, franchised, or independent. Brand affiliation can drive demand and pricing power, but it also brings constraints—especially around franchise agreements, standards, and management fees.
For private credit funds, brand flexibility is important. If the incumbent brand is removed, asset value and cash flows may be affected—particularly in markets where brand identity drives guest loyalty.
Mitigant: Ensure clear legal paths for brand exit, and underwrite downside valuation scenarios in rebranding events.
2. Operator Strength and Contract Structure
The performance of the hotel is tied to the operator’s ability to execute. Lenders must scrutinise:
- Track record
- Operator incentives
- Key person risk
- Management agreement terms
A well-aligned operator contract can enhance value, while a rigid, long-term agreement without performance-based incentives may impair future flexibility.
Mitigant: Consider step-in rights or termination triggers for underperformance; ensure capex alignment between sponsor and operator.
3. Cash Flow Volatility and Seasonality
Hotels are highly operational, and revenue is sensitive to occupancy rates, ADR (Average Daily Rate), and market cycles. Seasonality, particularly in resort or tourism-dependent locations, can skew cash flow patterns.
Mitigant: Underwrite to normalised EBITDA across high and low seasons; incorporate interest reserves or structural support during low-occupancy periods.
4. Capex and Reinvestment Needs
Unlike traditional CRE assets, hotels require regular capital investment—whether in FF&E (furniture, fixtures & equipment), tech upgrades, or compliance with brand standards.
Capex lines are increasingly expected within loan structures, especially for repositioning strategies.
Mitigant: Lenders should reserve for near-term capex and implement draw conditions aligned with milestone achievements.
5. Location and Market Dynamics
Market positioning is critical. Prime urban hotels with strong transport links and corporate demand typically outperform. Conversely, underperforming secondary locations face slower recoveries and fewer exit options.
Mitigant: Focus on cities with diversified demand drivers (corporate + leisure), event calendars, and strong RevPAR growth forecasts.
6. Exit Strategy and Valuation Sensitivity
Uncertainty around terminal value remains a concern, particularly with lingering valuation mismatches and refinancing risks in 2025. Exit planning is essential—whether via sale, recapitalisation, or refinance.
Mitigant: Private credit lenders should maintain conservative LTVs, clear refinance criteria, and sponsor equity cushions to absorb repricing shocks.
The 2025 Outlook: A Lender’s Market in Hotels
Despite macro challenges, hospitality assets are on the rebound—especially in gateway cities and luxury segments. While rate cuts have stalled, underlying hotel performance is stabilising, with international travel and event-led demand strengthening occupancy and ADRs.
Private credit fund lenders are uniquely positioned to capture this opportunity:
- Flexible structuring
- Appetite for transitional risk
- Capex-backed value creation
- Direct relationships with sponsors
At Turning Point Capital, we anticipate increased allocations to hotel-backed lending, focusing on mispriced quality, experienced operators, and ESG-aligned upgrade strategies.
Final Thought: From Caution to Conviction
2025 is shaping up to be a defining year for hotel finance. As institutional capital returns to operational real estate, the combination of stabilising fundamentals, retreating banks, and creative private lenders is reshaping hospitality investment across the UK and Europe.
Private credit will be at the centre of this resurgence—not as an alternative, but as the preferred lender of choice for complex, high-quality hotel deals.
