Coursework Loan Proposition: Note: This transaction is entirely ficticious Hotel loan opportunity: The hotel business has been very strong in London for the last few years. A number of hotels, particularly at the 5 star level have been built. London is expected to continue to see a stable tourist trade The Virtual Bank has been offered the opportunity to be lender to a overseas investor who is buying a 258 bedroom hotel in the City of London. The hotel will be owned by UK company which will be entirely owned by the investor. The company will have no other assets and will have no other lenders than that secured by the hotel. The owner of the company has owned 5 star hotels in major European capitals for over 15 years. The hotel is available to be purchased and you are invited to offer finance. The hotel is situated opposite the Tower of London. It is currently nearing completion of construction and has yet to trade. It is expected to be awarded 5 star status. It will have 2 restaurants and full banqueting facilities. The hotel is to be operated by Intercontinental Hotels Group ( IHG ) which is one of the world's largest hotel operators. It trades under various names. On Blackboard you will find full financial information on IHG. You are invited to fund the purchase of the hotel which will occur following practical completion of construction, expected to be in June 2017. The investor is buying a fully fitted hotel, ready to trade. You are only expected to provide purchase funds, with operational accounts for the hotel being held in a major UK clearing bank without overdraft facilities. IHG will be running the hotel under an operating agreement which requires it to advertise the hotel widely and offer it on its international web site. The operator will receive 7% of gross room revenues plus booking fees of 10% of bookings procured by it without reference from any other introducing agent. It will pay 10% fees on the bedroom rate to all introducers. Projected turnover is as follows: Years from end May 2016 Year 1 Year 2 Year 3 Average daily room rate, occupied, £250 £270 £290 including VAT at 20% Rooms available 94,170 94,170 94,170 Occupancy 68% 70% 72% Food and Beverages of gross room income 24% 26% 27% Net operating margin 38% 39% 40% Banqueting and conferences are projected to produce a net contribution of £2 million per annum, in addition to the above. The purchase price is on the basis of £700,000 per bedroom, fully operational. An LTV of around 75% is requested. Current fixed interest rate would be about 2.5% with a margin of 3%. Consider for lending purposes. You may, if you wish, disagree with the above financial projections and propose alternative figures. For your information, the following are on Blackboard: 1 IHG Annual Report 2015 2 BDO 2016 Report on UK Hotels 3 Terms used in hotel industry Your report should be submitted on Turnitin by 1,00 on Wednesday March 15th 2017