Hotels gain as realtors sell distressed assets

MUMBAI: When the going was good, a number of realtors diversified into the hospitality sector. But the recent financial crisis has hit them hard.

Real estate valuations have gone for a toss and developers are facing liquidity crunch. Raising funds has become costly and they’re now unable to complete their hospitality projects. With not many options left, they are looking at distress sale of hospitality assets to generate liquidity, say industry experts.

Utpal Parekh, senior vice-president (finance), Panoramic Universal Ltd, said that real estate players have overleveraged themselves. “They will have to look at distress sales as funding is just not available,” he said.

Keeping close watch on such assets are hotel companies such as Taj Group, Pride Hotels, Panoramic Universal and global chains like French hospitality major Accor.
Panoramic Universal recently closed a distress sale deal in Secunderabad and is negotiating for another in Ahmedabad.

It will develop a 3- or 4-star hotel with 90 keys in Secunderabad. The Ahmedabad hotel is operational with a 35 keys. “We have invested Rs 17.65 crore to acquire 100% stake in the semi-finished hotel at Secunderabad. The acquisition in Ahmedabad should cost us more or less the same,” Parekh said.

India’s leading hospitality chain, Indian Hotels Company Ltd (IHCL), is also looking at such properties provided they have a strategic fit with its expansion network. Anil P Goel, senior VP (finance), IHCL, said, “We are scanning the environment to see what opportunities are available in the market and whether the asset suits our criteria.”

The Tata Group had earlier announced a capex of Rs 1,300 crore for expanding IHCL’s network across India. Of this, about Rs 800 crore has been invested and the remaining Rs 500 crore will be used for further expansion, both organic and inorganic.
Uttam Dave, head of development (India), Accor Hospitality, said there has been a change in the way the hospitality business is seen of late and so, hotels cannot be discussed on a general basis. “It is very much a micro market wherein all the components, like the hotel site, product, brand etc, have to make sense for a hotelier to go for it. That’s the way we have always done it and will continue to in the future,” he said.

So far, Accor hasn’t come across too many projects that fit its criteria for expansion into various geographies.

Some hoteliers feel the market is some time away from becoming a very promising one. S P Jain, MD, Pride Group of Hotels, said, “My sense is that realtors will not be able to deliver 60-75% of all the developments announced in the last two years. So yes, we are certainly looking at quite a lot of hospitality assets being put on the block in the near future when desperation starts setting in.”

The signs are there, with developers selling projects, inviting partners, planning stake sales or JVs. The Pride Group has earlier turned around a Chennai property launched in 2007-end. The promoters are now negotiating a distressed asset in the UK and eyeing some Indian ones as well.

“It’s a 140-key standalone property close to central London. We will know the final status of this acquisition once the due diligence is done,” said Jain. The company expects this buy to cost Rs 116 crore, including renovation.

Jain said the Pride Group is seriously looking at buying hotels in cities such as Delhi, Secunderabad and Hyderabad, among others.
t_ashish@dnaindia.net