Rescuing a beachfront hotel
The controller of a four-star hotel in Málaga, Spain presented Arena, along with its joint venture partner, an opportunity to help cure an urgent liquidity squeeze. The hotel owner was a highly levered family whose other interests included bullfighting businesses, other hotels, and real estate assets—all in sectors highly impacted by the COVID-19 pandemic. With this hotel having been in default for about five months (and the hotel having been on the market but failing to have sold for more than a year), the bank was now forcing a resolution.
The modern, 12-story hotel, located a few meters from the beach and only a 10-minute walk to the town center, has about 200 rooms, most with full views of the Mediterranean Sea. It offers a full-service spa, outdoor and indoor swimming pools, large common areas that are very inviting for impromptu gatherings, and multiple bars and restaurants. It is in a highly popular tourist destination also known for its equestrian centers, golf courses, restaurants and amusement parks. That said, being highly dependent on tourism operators, the hotel’s income generation was at the low end of that of comparable hotels, which further impacted its potential for sale.
The situation was further exacerbated by the relatively small size of the outstanding loan balance, at under 10 million euros, which limited the appetite of institutions willing to design and execute a potential solution.
A forced resolution by the bank, while a straightforward legal process, would have taken six months or longer to complete, and the bank preferred to resolve the situation sooner. Given that the loan carried a personal guarantee, the borrower was left open to enforcement actions that could freeze their bank accounts, which could in turn render them unable to make payments to suppliers or other parties. This left the family in a potentially dire situation where, based on this relatively small holding, their other hotels and businesses could have also been impacted, creating a severe spiraling effect on the entirety of their businesses and other assets.
The hotel was in good condition but would benefit from certain enhancements that were not overly complex to implement. Arena saw these enhancements as a financially wise way to increase the hotel’s attractiveness and competitiveness. In addition, by stepping into the situation in place of the bank and buying the loan, Arena could provide the family with a grace period on that enforcement process, preserving their ability to help improve the hotel and expedite a sale process—leaving the family with valuable oxygen to keep their other debt performing for another few years and thus save their larger hotels and other businesses.
Arena was also equally comfortable with the possibility that the situation could otherwise turn positive and the family could simply repay the existing loan, leading to a potentially lower return for Arena, but still an acceptable outcome.
By structuring an investment with multiple paths to resolution, giving the impatient bank a faster exit, and designing a solution that considered the entirety of the family’s situation, Arena saw what was possible and provided much-needed capital where few might have done so—a win for all parties involved.