The first most common source of finance is from commercial banks. Banks had previously recoiled from lending money to the hospitality industry due to the collapse of many hotels in the 1990s but it has been rejuvenated by the uniform rule on real estate lending. The rule outlines the terms and conditions that banks use to lend to hotels and their franchises, most of which are favorable to the industry.
Life insurance companies also provide funding for hotels by providing direct loans and also by becoming partners with the hotel owners. These firms have recently become the largest financial institutions globally. They are a source of fixed mortgages for hotels due to their fixed dollar policy. Also, they have been the largest source of creative modes of financing that have emerged in recent times.
Private credit companies became an essential source of financing when the depression in the early 1990s made the traditional financing agencies unable to provide loans for real estate and mortgages for the hotel industries. They are usually the last resort due to high lending rates and high interests. They, however, provide capital during or before cash stabilization and also put in structures that enhance the loan quality and reducing risk.
Although very few pension funds invest in real estate, the numbers are steadily increasing. They are usually exempted from paying taxes. They turned to real estate as an investment strategy; they provide direct mortgages to hotels in exchange for equity. This is beneficial for both parties.
Syndication is when real estate firms partner up with hotel franchises. A syndicate is comprised of investors who provide capital in exchange for equity or limited partnership between both parties. Its use slowly declined due to the personal losses of investors and new emerging finance sources. It has since become more of a private source of finance, used by private developers.
References
Harris, P. 1997. Accounting and finance for the international hospitality industry. Oxford: Butterworth-Heinemann.
Ingram, H. and Ransley, J. 2004. Developing hospitality properties and facilities. Oxford: Butterworth-Heinemann.
Morrison, A., Rimmington, M. and Williams, C. 1999. Entrepreneurship in the hospitality, tourism and leisure industries. Oxford: Butterworth-Heinemann.
Powers, T. and Barrows, C. 1999. Introduction to management in the hospitality industry. New York: Wiley.
Schmidgall, R. 1990. Hospitality industry managerial accounting. East Lansing, Mich.: Educational Institute of the American Hotel & Motel Association.
