This story first appeared in DNA Money edition on Tuesday, September 20, 2011.
It all started in 2009 with Unitech’s 200-keys flagship hotel in Gurgaon, which was bought by New Delhi-based high networth individual Roop Madan, who is also a Tata Motors dealer, for Rs250 crore.
Since then, several high networth individuals and business groups from sectors like auto, petroleum, recruitments and telecom have grabbed hospitality assets, marking a whole new trend.
Among others, O P Munjal-led Hero group announced its foray into the hospitality market with the acquisition of a cold shell (unfinished hotel structure) at a strategic location in Gurgaon for over Rs400 crore, while Saudi Arabia-based Ravi Pillai, who is in the petroleum and recruitments business, acquired BSE-listed Hotel Leelaventure Ltd’s Kovalam beach resort for Rs500 crore.
Meanwhile, leading European telecom company Lebara Group also concluded a brownfield acquisition of a 190-key project in Chennai for an undisclosed sum and got on board the BSE-listed Indian Hotels Co Ltd to operate and manage the hotel under the ‘Gateway’ brand.
Indeed, as hoteliers, pure-play realtors and financial investors, including realty and hospitality focused funds, shy away from acquiring hotel assets, the sellers seem to be aggressively tapping the unconventional buyers, including HNIs and non-related business groups.
“Setting up hotel assets requires capital. While there are other capital sources available, their return expectations and investment horizon don’t necessarily match with those of the hotel assets. As a result, the funds are coming from HNIs and other unconventional sources with patient capital and the propensity that an investment in hotel asset requires,” said Sudeep Jain, executive vice-president - India, Jones Lang LaSalle Hotels.
Homi Aibara, partner and consultant, Mahajan & Aibara Management Consultants, seems to concur. “HNIs tend to pay a higher price as compared to strategic buyers who lay a lot of emphasis on the valuation of the asset and its strategic fit. As for reasons behind other business groups showing interest in this asset class is concerned, they have investible surplus and their return expectations are not as high as compared to a private investment firm/ fund looking at an internal rate of returns of over 20%. Business groups generally have a return expectation of 10-12% on such assets which is fairly achievable,” he said.
According to domestic and international property consultants mediating various hotel asset sale transactions, a number of hotel assets have been put on the block post the economic downturn of 2008, largely by real estate companies and a few others from the hotelier fraternity. Only a few deals here and there, like the acquisition of Dawnay Day’s hotel portfolio by hotels-focused fund Duet India Hotels got concluded.
Most of them are still in the market awaiting buyers as the valuation expectations are significantly higher than what buyers are willing to pay. However, going by the way hotel assets are being bought by a completely different set of buyers in the last few quarters, it is very likely the momentum will pick up going forward.
To cite an example, India’s largest real estate company DLF Ltd has been trying to exit its investment in luxury hotel chain Amanresorts International Pte, a chain of 25-odd boutique hotels and resorts it bought for $400 million back in November 2007.
According to recent media reports, LVMH Moet Hennessy Louis Vuitton is among some of the potential buyers of this luxury hotel chain. However, both DLF and LVMH have remained tight-lipped on this development.
Similarly, after selling The Leela Kovalam Beach Resort to Ravi Pillai’s Travancore Enterprises, the Nairs are believed to be now contemplating selling their soon-to-launch The Leela Palace Kempinski hotel in Chennai to the same buyer. Industry experts see it as a logical step as the company is trying to raise funds and reduce the huge debt on its books.
Another prominent seller of hotel assets is DB Hospitality, wherein the company promoters are mulling an exit from some of their operational projects including the Hilton Mumbai International Airport Hotel and Le Meridien hotel in Ahmedabad.
According to the company management, the proceeds could be used to improve the company’s debt-equity ratio.
Realtors and hotel owners in desperate need for money will be exploring possibilities with HNIs and other business groups to raise money... The strategy also augurs well with hotel companies pursuing the asset light strategy and focusing on their core which is operating and managing the business,” said an industry source.
It all started in 2009 with Unitech’s 200-keys flagship hotel in Gurgaon, which was bought by New Delhi-based high networth individual Roop Madan, who is also a Tata Motors dealer, for Rs250 crore.
Since then, several high networth individuals and business groups from sectors like auto, petroleum, recruitments and telecom have grabbed hospitality assets, marking a whole new trend.
Among others, O P Munjal-led Hero group announced its foray into the hospitality market with the acquisition of a cold shell (unfinished hotel structure) at a strategic location in Gurgaon for over Rs400 crore, while Saudi Arabia-based Ravi Pillai, who is in the petroleum and recruitments business, acquired BSE-listed Hotel Leelaventure Ltd’s Kovalam beach resort for Rs500 crore.
Meanwhile, leading European telecom company Lebara Group also concluded a brownfield acquisition of a 190-key project in Chennai for an undisclosed sum and got on board the BSE-listed Indian Hotels Co Ltd to operate and manage the hotel under the ‘Gateway’ brand.
Indeed, as hoteliers, pure-play realtors and financial investors, including realty and hospitality focused funds, shy away from acquiring hotel assets, the sellers seem to be aggressively tapping the unconventional buyers, including HNIs and non-related business groups.
“Setting up hotel assets requires capital. While there are other capital sources available, their return expectations and investment horizon don’t necessarily match with those of the hotel assets. As a result, the funds are coming from HNIs and other unconventional sources with patient capital and the propensity that an investment in hotel asset requires,” said Sudeep Jain, executive vice-president - India, Jones Lang LaSalle Hotels.
Homi Aibara, partner and consultant, Mahajan & Aibara Management Consultants, seems to concur. “HNIs tend to pay a higher price as compared to strategic buyers who lay a lot of emphasis on the valuation of the asset and its strategic fit. As for reasons behind other business groups showing interest in this asset class is concerned, they have investible surplus and their return expectations are not as high as compared to a private investment firm/ fund looking at an internal rate of returns of over 20%. Business groups generally have a return expectation of 10-12% on such assets which is fairly achievable,” he said.
According to domestic and international property consultants mediating various hotel asset sale transactions, a number of hotel assets have been put on the block post the economic downturn of 2008, largely by real estate companies and a few others from the hotelier fraternity. Only a few deals here and there, like the acquisition of Dawnay Day’s hotel portfolio by hotels-focused fund Duet India Hotels got concluded.
Most of them are still in the market awaiting buyers as the valuation expectations are significantly higher than what buyers are willing to pay. However, going by the way hotel assets are being bought by a completely different set of buyers in the last few quarters, it is very likely the momentum will pick up going forward.
To cite an example, India’s largest real estate company DLF Ltd has been trying to exit its investment in luxury hotel chain Amanresorts International Pte, a chain of 25-odd boutique hotels and resorts it bought for $400 million back in November 2007.
According to recent media reports, LVMH Moet Hennessy Louis Vuitton is among some of the potential buyers of this luxury hotel chain. However, both DLF and LVMH have remained tight-lipped on this development.
Similarly, after selling The Leela Kovalam Beach Resort to Ravi Pillai’s Travancore Enterprises, the Nairs are believed to be now contemplating selling their soon-to-launch The Leela Palace Kempinski hotel in Chennai to the same buyer. Industry experts see it as a logical step as the company is trying to raise funds and reduce the huge debt on its books.
Another prominent seller of hotel assets is DB Hospitality, wherein the company promoters are mulling an exit from some of their operational projects including the Hilton Mumbai International Airport Hotel and Le Meridien hotel in Ahmedabad.
According to the company management, the proceeds could be used to improve the company’s debt-equity ratio.
Realtors and hotel owners in desperate need for money will be exploring possibilities with HNIs and other business groups to raise money... The strategy also augurs well with hotel companies pursuing the asset light strategy and focusing on their core which is operating and managing the business,” said an industry source.
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