Buying hotels to demolish and sell as part of real estate play

An interesting observation was made about property appreciation in relation to hotel assets, at the recently concluded Hotel Investment Conference South Asia (HICSA) in Mumbai. 

Leading hotelier Arun Saraf, MD, Juniper Hotels and MD, Asian Hotels East Ltd (a BSE listed company), said he is considering buying hotels not to run them as hotels because the real estate value is significantly higher than the built hotel. "It makes a lot of sense to demolish the hotel after a particular period and sell it as a land parcel instead as part of your real estate play," he said.

Saraf's current hotel development pipeline comprises nine upscale and mid-market hotels in various cities such as Raipur, Hampi, Lucknow, Sarnath, Guwahati, Ahmedabad, New Delhi, Jaipur, and Thiruvananthapuram. These projects are being developed by two of his companies viz. Juniper Hotels Pvt Ltd and Chartered Hotels Pvt Ltd.

Asset owners are of the opinion that that property appreciation has got no meaning in hotel industry because when the asset owner wants to sell the hotel, it will never be bought on the land or replacement value. "The kind of business being done by the hotel decides its selling price in the market," added Atul Chordia, CMD, Panchshil Realty.

Industry players were also of the view that if the buyer is a pure institutional ownership company, the company is very likely t see some asset reallocation within portfolio in the long term. "And if the allocation gives the company a higher value than what a public or private market offers then it certainly is time to sell the reallocated asset," stressed Ashish Jakhanwala, managing director and CEO, Samhi Hotels Pvt Ltd.

Follow Ashish K Tiwari on twitter @ashishktiwari