German & International Hotel Financing: 3 Deal‑Defining Clause Clusters (Real Estate LMA Term Loans)

Introduction

Hotel financings are not “standard” real estate loans. In Germany—especially where a Pfandbriefbank is involved—and across international bank clubs, the credit story is driven by operating performance, operator/brand risk and cash control.

In practice, an amortising term loan structure is often anchored by DSCR and LTV as the core covenant package. Many deals use these ratios to trigger cash trap / cure ladder mechanics rather than immediate defaults—which means the drafting of triggers, definitions and escalation steps is where flexibility is won or lost.

1.     Cash management & waterfall: control without operational paralysis ➡️

Hotels generate cash daily (cards, OTAs, events). Lenders want visibility and priority payments; borrowers need uninterrupted operations. The borrower-friendly middle ground is usually springing cash management: normal operating flexibility unless agreed triggers occur, then cash gets trapped and applied through a clear waterfall.

  • Clear priority for operating costs (payroll, utilities, key suppliers, brand fees).
  • DSRA and reserves that stabilise—not suffocate—liquidity.
  • Practical release mechanics once performance normalises.

2.     Covenants & cure ladder: make DSCR workable under amortisation ✅

Unlike office rent rolls, hotel cashflow is seasonal and sensitive. The key negotiation point is often not the headline DSCR/LTV level, but the definitions and testing mechanics: TTM calculations, treatment of one-offs and the escalation path.

  • DSCR tests that reflect seasonality (often TTM, not pure quarterly snapshots).
  • Sensible treatment of exceptional items (e.g., insurance proceeds, pre-opening/one-off costs, major repairs).
  • A cure ladder (cash trap → DSRA top-up → targeted prepayment) instead of hair-trigger default dynamics.
  • Valuation triggers with materiality (avoid repeated discretionary, borrower-funded valuations while keeping monitoring discipline).

3.     Operator/brand controls: the “lease” is the management/franchise contract 🏨

In hotel deals, the key contract is typically the HMA or franchise agreement. Lenders will seek consent rights, direct agreements and replacement mechanics. Borrowers should accept the principle—but lock in workable timelines and avoid micromanagement.

  • Realistic cure & replacement periods for operator/brand events ⏳
  • Consent rights limited to material changes ✂️
  • PIP/CapEx undertakings integrated into a budget process (thresholds + deemed approvals)

Conclusion

In German and cross-border hotel financings—especially on an amortising term loan—these three clusters determine whether you can actively manage the asset, or whether the loan documentation manages you. Get them right early, and you reduce friction, legal cost and refinancing risk.

More on structured real estate and hotel financings: www.djm.legal

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