An experienced operator group bought a 124-bedroom branded hotel on a Midlands motorway corridor with a £12.5m commercial mortgage at 100% of the vacant possession value. No development finance, no bridge, no equity raise. A trading business mortgage, driven by the accounts.
| Location | Midlands, motorway corridor |
| Loan amount | £12,500,000 |
| Gearing | 100% of vacant possession value; 88% of going concern value |
| Term | 20 years, fully amortising from day one |
| Product | Owner-occupier commercial mortgage, fixed rate |
| Debt service cover | Just over 200% on trailing EBITDA |
The situation
The buyers were an operator group with three trading hotels, two of them branded. The target was a 124-bedroom hotel flying a global mid-scale flag, positioned on a motorway corridor with the kind of midweek corporate trade that keeps occupancy boringly consistent. Going concern value £14.2m. Vacant possession value £12.5m. Trailing EBITDA £2.6m and stable across three years of accounts.
The group's problem was the usual one. At conventional 65% gearing they needed to find roughly £5m of cash on top of costs, and that money was already working: one of their existing hotels was mid-refurbishment under a brand improvement plan that could not be paused. They had the covenant to buy. They did not have £5m sitting idle, and no well-run hotel group does.
Why the mainstream market could not do it
Every conventional lender they spoke to before us capped the facility at 60% to 70% of value and quoted from the standard commercial book. Two told them flatly that hotel lending above 70% does not exist. It does. Appetite for 100% funding on branded hotels sits in a very small corner of the market, it applies on loans above £1m, and it is not advertised anywhere a borrower would look. Most brokers do not know it exists either, which is not a criticism, just the reason this deal came to us.
The structure
We placed the case as an owner-occupier commercial mortgage at £12.5m, 100% of the vacant possession value, which also sat inside the market's ceiling against the going concern figure at 88%. The structure carried the three features that define full-gearing hotel lending. The loan fully amortises across its 20-year term from the first month, with no interest-only period. The principals gave personal guarantees. And the facility is relationship-managed, with quarterly management accounts a standing condition.
Pricing landed as a fix in the low 8s before discounts. The building's energy rating and the loan size each earned a quarter point, and evidencing debt service cover above 200% at application earned another, bringing the final fix in just under 8%. Annual debt service of roughly £1.26m against £2.6m of EBITDA left cover just over 200%, and that headroom was the case. Cover is the engine of this product. The brand gets you considered; the accounts get you approved.
How it completed
The preparation did the work. Before the valuation was instructed we assembled three years of accounts, current-year management figures and the brand's performance reports, so the valuer walked in with the evidence for both values rather than assumptions. Terms were agreed inside two weeks. Valuation and underwriting ran through weeks three to seven, legals overlapped, and the purchase completed in week ten. The only wobble was a title point on a car park licence, resolved by the solicitors without touching the facility.
Ten weeks, first call to keys.
The outcome
The group bought a £14.2m trading hotel for £900,000 of cash plus costs, kept their refurbishment programme fully funded, and hold the asset on a 20-year amortising fix at just under 8% with debt service covered twice over. The £5m a conventional structure would have consumed is still working inside the business.
Frequently asked questions
Was this development finance?
No. Nothing was built, converted or refurbished as part of the transaction. This was a commercial mortgage on a trading business, secured on the hotel with a debenture and personal guarantees, assessed on the accounts.
Is 100% hotel finance available to anyone?
No. It applies to branded trading hotels on loans above £1m, borrowed by experienced operators whose accounts show strong debt service cover. First-time buyers without hospitality track record are not the market for it.
What does 100% actually refer to?
100% of the hotel's vacant possession value, the bricks and mortar figure. The going concern price of a well-traded hotel usually sits above that, so the buyer funds the difference, here £900,000 on a £13.4m purchase.
Why was the loan fully amortising?
Lending above 80% of vacant possession value amortises from day one. That is a standing feature of full-gearing hotel finance, and it is why the debt service cover test is applied so firmly at application.
What rate applies at 100% gearing?
Fixed rates at full gearing run in the low to mid 8s. Discounts for energy performance, loan size and evidenced cover above 200% brought this case in just under 8%.
Illustrative case. Figures reflect the standard shape of this transaction type; rates and criteria change and depend on the case. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
Buying a branded hotel, or buying out the one you run? The accounts decide what is possible. Send them over and we will tell you where the case sits inside a day.
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