Nikos S. Morantis, Hotel Investment Advisor at Destsetters , answers ETravelNews , what is the best financing tool for a new hotel investment, and what you need to know about the New Development Law, the NSRF and the Recovery Fund?
One of the most frequent challenges we are asked to manage at Destsetters is the balance between the specification of the concept of a new accommodation in relation to the budget of the project and the possible sources of funding. Thus, the presentation of possible financing tools is one of the fixed points of our advisory service regarding both new accommodation and existing hotels that will undergo a major renovation, aiming to provide a comprehensive service that will lead to a successful investment.
Below we have collected the 4 most frequently asked questions in relation to the financing of a hotel project and present them to you in order of interest, according to the most common questions of new investors:
Πριν διαβάσετε το άρθρο:
Είμαι Νέος Επενδυτής και θα κάνω Κατάλυμα
Είμαι Ξενοδόχος και θα κάνω Ανακαίνιση
Είμαι Ξενοδόχος και θα κάνω νέα Επένδυση
How can my investment be included in the Development Law and what are the chances of success of the file?
Although objectively the Development Law gives the most "free" money of all the available programs, it is at the same time the most demanding program, as it concerns larger-scale investments as well as projects that are well advanced in the early stages before submitting a file. Clearly, however, we are talking about the strongest financing tool, since the amount of financing can reach up to 3,000,000 euros.
Initially, the first thing that must be answered is whether the Development Law is the right tool for an investment, as each plot or building has different possibilities and each owner has different perspectives and desires. So, in the first phase, it is necessary to study what is the optimal type of accommodation that will perform in the specific area with the existing conditions. ( Read about the typology study ).
As a hotel license of at least 4 or 5 stars is required, by default more requirements are created in terms of infrastructure, thus increased costs of construction and personnel during its operation. The number of staff is determined both by the operation of the 4th or 5th grade, as well as by the amount of funding, and in fact by the mandatory employment of employees with a specified academic background, which increases the probability of inclusion since it boosts the score.
As the demand and competition is high, it makes sense to submit a file only mature investments that will have a strong concept ( Read about the concept development process ) and correct typology based on reliable research, full architectural study (ideally with permission), a studied business plan but also the relevant pre-approvals from the bank.
The investor must usually have about 25% of the total budget but also the patience in terms of time as the submission and results are a time-consuming process. The investment depending on the size of the accommodation has a completion time of at least 24 months from the submission of the file and on the condition of having a mature investment plan.
Conclusion:
In general, the New Development Law has been formulated in such a way that it mainly concerns medium- and larger-scale determined investments that have actually progressed through the first stages (concept, architecture, business plan), so that they have gathered the appropriate score to claim the program.
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We identify the appropriate financing tool for your investment.
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Can I alternatively join the upcoming NSRF? And if so what should I expect from it?
The NSRF is a program with a smaller dynamic (if we rely on the previous one it provided 50% for investments up to 400,000, so a net amount of 200,000).
It is, however, less demanding in terms of license (previously there was a minimum requirement of either 3 residences of 40m2, or 3-key rooms for rent with 10 beds) and does not usually increase operating costs, since it has no minimum staffing requirements.
At the level of file submission, it is an easier program and does not require so much maturity, however, again a clear description of the investment concept and a correct commercial typology of the accommodation is necessary, which will allow the business plan to be submitted to prove the viability of the project .
Conclusion:
NSRF is ideal for smaller scale projects, looking for a more flexible operating model without the restrictions of a hotel license, while it is important to mention that although it is a program in demand, it has an increased chance of approval due to available funds.
Is the Recovery Fund a tool I can use, and if so what are the pros and cons?
The Recovery Fund, although it is one of the most important and flexible programs, is not particularly well-known, as it finances the investment through low-interest loans and is ideal for both smaller and larger investments.
More specifically, it can cover up to 50% of the total investment budget with a fixed interest rate of 0.35% and a repayment period of 15 years, without a maximum amount of financing.
As a program it is particularly flexible, as the minimum requirements are the configuration of at least 5 houses with a minimum of 40m2, while it does not require the provision of services or a specific number of staff.
Submission to the specific program requires the investor's own participation with at least 25% of the total investment, while the submission file is particularly simple, requiring in this case also a commercial concept and a correct accommodation typology that will lead to a sustainable business plan .
Among the great advantages of the Recovery Fund is that it also finances up to 30% of the purchase of the plot of land or a property in its entirety, while it has a much faster approval time that speeds up the implementation of the project.
Conclusion:
The Recovery Fund is an ideal program for both small and larger investments, since it covers a large part of the budget and gives flexibility to the investor to decide how to operate the accommodation, without binding it to specific work models and fixed costs. The program becomes even more attractive, as it can be combined with other financial instruments, giving a good return.
For example, if I have a project with an implementation cost of 1,000,000 euros and I have received 200,000 euros from the NSRF, I can receive up to 300,000 euros from the Recovery Fund, as the combination of programs must not exceed up to 50% of total amount of the investment.
What other financing programs can I use to build or renovate my hotel?
For the overall needs of upgrading and operating an accommodation, there is the "Tepih II" program, which is a preferential loan of up to 1,500,000 euros, which is completely interest-free for 40% of the amount, while the remaining 60% is agreed at a preferential variable interest rate, since it is subsidized by the program.
For targeted business modernization needs, there is the "Innovation Guarantee Fund" which provides a loan of up to 400,000 euros (40% interest-free, and with a favorable interest rate on the rest), covering green and technological costs. The advantage of the program is that if tangible ESG (Enviromental, Social, Governance) upgrade goals are achieved after the upgrades, 20% of the funding amount is granted. That is, if you get financing through the "Innovation Guarantee Fund" up to 400,000 and you achieve the goals, you may be "gifted" up to 80,000 euros, while 40% of the loan will be completely interest-free.
In both programs, the investor should have adequately answered the benefit that will exist from the investments in the typology and concept of the accommodation, but also how these will enhance the performance.
Conclusion:
The above programs are ideal for targeted accommodation upgrades with immediate and easy absorption that facilitates liquidity.
Summarizing
Choosing the right financing program for your investment in the hotel industry depends on your own needs, the availability of resources and the characteristics of your project. It is important to carefully examine the conditions and requirements of each program before deciding which will be the best for you and also to choose a program according to the ideal typology and concept of your accommodation.
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Hotel Concept Development is the most upgraded service of Destsetters, which aims to create unique hotels, with high profit margins, proper operation , but also recognizable features that will help them stand out from the competition.
Taking into account the location of the plot or building, the wishes of the owners, the competition and the relative demand , we take care to specify the characteristics and strategy of the investment , so as to create a unique accommodation that responds to the needs of travelers, with real profit prospects .
Our team works with new investors, hoteliers, consulting companies and architectural firms , who wish to have a complete hotel specification that will provide all the necessary research and hotel know-how , identifying the commercial characteristics of the new accommodation as well as defining the elements of the of its strategy, which should be reflected in its design and concept, so as to lead to a successful investment.