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Topping Up Mortgage Facilities After Revaluation Can
Lead To Disaster
December 2007
Currently we are seeing a number of Hotels that had
been purchased over the past two to three years come back onto the market by way
of a distressed sale caused as a result of buying on a particular yield,
building of the business by improved management practices and then revaluing the
Hotel for the purpose of refurbishment which may not lead to further increased
in trading and profitability performance.
In some cases these increased borrowings against the Hotel asset are often used
to purchase an alternative hotel or non-hospitality asset, thus applying
pressure to the core asset when the financial institution begins to look for a
reduction in borrowing levels particularly if outside influences (e.g.
non-smoking) lead to downturns in trade.
This more so, than inflated purchase prices have been a major cause for the sale
of some hotels that have been purchased in this last two to three year window.
John Williams
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