Hotel deals to pick up as buyers check in

MUMBAI/DELHI: Tens of hotel properties in the country are expected to change hands in the coming months with softening of valuations bringing buyers back to the market after more than two years. According to industry estimates, more than 80 hotels across segments ranging from mid-market to premium are up for grabs, and many potential buyers have initiated discussions with sellers as hotel valuations have softened by over 25% in one or two years.

“Earlier you heard about hotel assets in the market, but wondered whether there were buyers for these.But now we see the valuations softening and transactions are progressing, which was not the case few years back,“ said Aakanksha Joshi, associate partner at Economic Law Practices, which works with hotel owners and brands in acquisitions and management contracts. Those looking to acquire hotel properties in the country include US-based Shamin Hotels, Europe's second-largest hotel group Louvre Hotels Group and Indian firms SAMHI and Unique Mercantile.

In the past few years, the hospitality industry in the country had been impacted by the overall slowdown in economy that hit both business and leisure travel. Several hotels slipped into red amid falling checkins and declining room rates. Banks too became wary of lending money to hotel developers.
While many wanted to sell their properties, the valuations then were based on the real estate and inflation, and they failed to attract buyers. It's changing now. PC Amin, founder of Shamin Hotels, said the hotel industry in India is gradually moving to the US practice of valuing hotels based on revenue and profitability of the asset.

Shamin Hotels, which owns, operates, and builds several hotels under global brands, including Hilton, Marriott and Starwood, is now looking to build hotels in India. “We hope to find appropriate location by 2016, unlike two years ago, when five star property prices were based on inflation and not profitability,“ Amin said.

Industry experts say currently there are two types of sellers in the market -traditional hoteliers, who only build hotels and real estate developers, who entered the industry during the boom time in 2007-08 and built hotels.

“Since a lot of assets were erected as standalone properties by real estate developers, they have been stressed and there is distress value there,“ said Rahul Rai, executive director at real estate firm Unique Mercan tile, which wants to pick up stressed hotel assets in India and convert them into mid-market brand Howard Johnson, a brand belonging to the US-based Wynd ham Group.

Louvre Hotels Group, which was re cently acquired by China's biggest hotel company Jin Jiang International Holdings, is firming up over $100 million (about Rs 620 crore) investment plans to acquire assets in India and grow the brand inorganically.

“Buying a hotel is a faster way of growth than building it, as it saves the time to get the clearances required in a Greenfield project,“ said Vimal Singh, managing director for South Asia at Louvre Hotels Group and its sister concern Golden Tulip Hospitality Group.

He said the company is looking at a range of luxury to budget hotels in India which fit the company's standards and attributes.

Gurgaon-based hotel development and investment company SAMHI, too, is on the lookout for hotel assets.

“In our opinion it is an opportune time for hotel buyers as asset prices are rationalised and there is a definite upturn in RevPAR (revenue per available room) cycle,“ its managing director Ashish Jakhanwala said.

Owing to the property slump, the land parcels marked for hotels at Mumbai International Airport were auctioned at a price at par with those at Delhi International Airport (DIAL), even though the latter was auctioned nearly six years before, said people privy to the MIAL auction process. While the optimism is returning back to the market, it may still take some time for deals to be finalised.