Hotel Non Performing loan an unprecedented real estate investment opportunity

02/01/2024 - 02/01/2027

In recent years, there has been a significant increase in non-performing loans (NPLs) in the hotel industry, with a growing number of real estate mortgages going unpaid by debtors, turning them into non-performing loans. This situation has created an unprecedented opportunity for hotel real estate investors, who can access properties before they go to auction, thus avoiding competition.

 

To better understand the importance and implications of hotel NPLs, a number of aspects that are fundamental to concluding the deal must be analyzed.

 

When it comes to a hotel property, the underlying credit generally does not refer to a “hotel license” or hotel business, but rather to a property that, previously managed as a hotel, may have the characteristics to become one again.

 

Having the characteristics does not necessarily mean that it does, as it may need, due to changes in building regulations, significant renovation work that needs to be factored into the investment valuation. Only after completing such work or adapting the structure is it possible to apply for a new hotel license.

 

The discontinuity with the previous operator is a fundamental element because it is the only way to secure the new hotel initiative.

 

Despite these aspects, which must be carefully evaluated during due diligence, hotel NPLs represent a great opportunity for real estate investors and hotel companies. Due to the pandemic and economic difficulties, many debtors are unable to meet their financial commitments, creating ample space for new investment opportunities.

 

Furthermore, the recent tightening by the ECB on European banks has further incentivized the sale of non-performing loans, making the NPL market particularly lively.

 

The introduction of the Guarantee on the Securitization of Non-Performing Loans (GACS) by the State has helped reduce the difference between the price requested by banks and what investors are willing to pay, making hotel NPLs even more attractive to investors.

 

Opportunities for investment related to hotel NPLs

 

Hotel NPLs offer the opportunity to acquire heavily discounted mortgage loans that are already subject to ongoing enforcement proceedings, allowing investors to avoid the inflated real estate auction system.

 

Furthermore, managing NPLs requires specific skills and a targeted investment strategy, which can lead to a certain gain for short-term investors (purchase and resale of the underlying property) or a good return for those who, by purchasing a discounted hotel property, can lease it at market prices, thus consolidating significantly higher returns.

 

In conclusion, hotel NPLs represent one of the best real estate investment opportunities, allowing investors to access properties with considerable income potential. However, evaluating the actual performance of the hotel business within the property requires careful market assessments.

 

There is a risk that, in the face of a convenient real estate evaluation, there may not be an equal return on the management side. Essentially, not everything that is found at a discount can be positively evaluated from a hotel management perspective.

 

Investhotel Capital Partners ( www.investhotel.it ) constantly assists both real estate and hotel investors in evaluating their investments.

 

Roberto Necci

info@robertonecci.it

 

 

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