Leasing model

A hotel lease that replaces balance sheet recourse while maintaining security through a combination of guarantees, resulting in higher investment grade yields.

Context:

An absence of international 5-star hotels in the UK gateway cities.

Leases

Grantchester Hotel leases are designed to allow investment into the upper end of the European and UK hotel markets, which traditionally has only been possible for investors and institutions prepared to accept hotel management agreements.

The ownership and lease structures have been drafted in consultation with UK property institutions and banks and are for periods up to 25 years, on a full repairing and insuring basis, with 5-year rent reviews linked to the Retail Price Index.

Rents are a product of each hotel’s pro-forma profit & loss projections; options included are base and profit share rents, together with incremental provisions during the 1st five years of hotel trading.

Leases are co-terminus with the hotel operating and franchise agreements, both of which are contracted to the tenant.

Non-Recourse Leases vs Hotel Management Agreements

  • Leases provide recourse to a rent guarantee account rather than a balance sheet
  • The rent guarantee account is put in place at lease commencement
  • Non-recourse leases fulfil all the obligations of full repairing & insuring (FRI) leases
  • In the event of recession, hotel closure or pandemics, payments & profits with traditional leases and HMAs risk immediate cessation; however, non-recourse lease rents will continue to be funded from the guarantee account
  • Both the hotel operator & franchisor are incentivised through investment into the lease, thus fashioning a motivation for hotel performance
  • Non-recourse leases can be inserted into existing hotel operations and allow retention of the hotel operator and franchisor

Methodology:

A hotel lease that replaces balance sheet recourse while maintaining security through a combination of guarantees, resulting in higher investment grade yields.