Case study
Development Raise For Luxury Hotel and Spa Expansion
A family-owned 5* holiday resort in the picturesque UK countryside approached the team at GJC Hospitality to help produce a feasibility study for expansion post pandemic. The expanded offering included the build of a luxury hotel and spa on the sprawling estate.
Capitalising on a niche market, the owners wanted to create a high-end experience for guests that would include a private members club similar to the infamous Soho Farmhouse, offering exclusive benefits and amenities. The offering would create a non seasonally dependent and a consistent source of income throughout the year.
The success of the planned luxury hotel and spa expansion rested on a thorough debt feasibility study. This analysis delved into financial projections to assess the project’s viability and attractiveness to potential lenders. Key metrics played a crucial role in making this viable for successful funding.
Investor appetite was a major concern. The Internal Rate of Return (IRR) measured the project’s profitability over its lifespan. This metric needed to meet investor expectations and justify the debt taken on for the project to be considered a success. Project profitability was also a major factor. The Net Present Value (NPV) gauged the present-day value of all future cash flows, and a positive NPV indicated the project would generate a profit after accounting for initial investment and ongoing expenses.
The ability to manage debt obligations was crucial. Debt coverage ratios assessed the project’s capacity to service its debt. Would the projected revenue and cash flow be sufficient to comfortably cover loan repayments and interest? A Discounted Cash Flow (DCF) Analysis considered the time value of money when evaluating future cash flows, providing a more accurate picture of the project’s true profitability under debt financing.
Results
A detailed debt feasibility study was essential for the success of this luxury hotel and spa expansion project.
By comprehensively analysing financial projections and investor expectations, the project’s viability could be assessed, leading to informed decision-making and potentially securing the necessary financing which GJC Advisory then went on to open funding doors for the client.