The Nairobi UpperHill Hotel has been put up for auction, adding to the growing list of hospitality establishments that have gone under the hammer as the effects of saturation in the industry continue to bite.
Garam Investments Auctioneers on Monday listed the four-storey property in the local dailies and invited potential buyers to snap up the property. The bidding deposit is Sh10 million.
The hotel, which is located in the prime Upper Hill area, is set to be auctioned on February 11 to recover a debt owed to the National Bank of Kenya #ticker:NBK.
According to the auctioneers, the leasehold property has a Sh5 million gross monthly income and its lease has 76 years to expiry. The annual revisable ground rent is Sh18,800. The hotel is owned by businessman Wahome Muotia.
Nairobi UpperHill now enters the growing class of hotels owned and operated by locals that have fallen to mounting debt and slowed down business as a result of the increased supply of rooms in the country and the government’s directive for public servants to hold their meetings in government institutions as part of cost-cutting measures.
Mr Muotia had initially secured a Sh281 million loan against the property in 2014. He blamed the poor structuring of financing systems for the challenges local hoteliers have experienced repaying their loans.
“Note there is structural weakness in funding Africans building hotels in Kenya because you are required to service a loan immediately after drawdown and unfortunately a hotel takes 36 months to construct. For example, from ordering to installation of a lift takes one year; plus once opened, a new hotel makes losses for five years,” said Mr Muotia in an interview with Business Daily.
The property now joins others like former Cabinet minister Gideon Ndambuki’s Roof Garden Hotel. The six-storey hotel in Machakos town was initially advertised a fortnight ago.
The two join Jacaranda Hotel, which is owned by the late Njenga Karume, on the list of those up for auction, though the family of the late tycoon was earlier this month given 90 days to mobilise funds for offsetting the money owed to Guaranty Trust Bank (GT Bank).
Documents filed in court showed that Jacaranda Hotel took a loan of Sh250 million from GT Bank in 2014 and 2015. The hotel at the same time took an overdraft of Sh50 million for working capital financing. The balance was amalgamated in May 2017.
Boma Hotels, which is owned by the Kenya Red Cross, also went under receivership over failure to pay loans owed to National Bank.
Last month, nine prime residential hotel apartments in Pangoni Beach Resort in Shanzu, Mombasa, were also put up for sale by auctioneers due to outstanding loan payments.
With the increased number of international players leveraging on global hotel management firms for bookings and revenue strategy, smaller players are bowing out.
The situation is expected to worsen as the government implements austerity measures by moving training sessions to its own facilities. This is expected to further eat into revenues of privately-owned hotels that had relied on such arrangements. The hospitality sector in Nairobi and Mombasa has been relying on meetings, conferences and trainings for revenues, following travel advisories and terrorism threats.
Hoteliers in the 47 counties have also been struggling due to pending payments from county governments who have used the facilities. First, the counties experienced delayed disbursements from the Treasury and even after the money was sent, pending bills had to be verified before being paid.
In 2019, the available rooms hit the 20,000 mark with new signings spurring growth and foreign investments. The figure is expected to continue rising with more than 4,000 new rooms slated to come on board over the next three years, driven by the entry of large hotel groups into the Kenyan market.
The smaller properties are also faced with additional competition from tech-based services such as AirBnB, offered by individuals who do not incur similar overheads as those of an entire hotel.
Changes in the hospitality segment have also affected international chains. At the end of the month, South African hospitality group Tsogo Sun will be closing the Southern Sun Mayfair Hotel in Nairobi. The 171-room hotel has faced increased competition over the past decade as the hospitality industry has witnessed the entry of new players as well as expansion by established brands.
Even as Kenya pushes for increased tourist numbers, challenges such as insecurity, political tensions and slow adoption of technology stand in the way of growth of the hotel industry. Despite the drawbacks, earnings from the tourism sector improved to Sh163.6 billion from Sh157.4 billion in 2018, representing a 3.9 percent growth, but this was a slower growth compared to 37.33 percent the previous year.