Conferences

Realities of realty

Express Hospitality attended the CII Real Estate Conference: Realty 2007 that analysed, amongst other realty trends, the budget hotel boom with a discussion on the growing demand for real estate by hotels. Can budget hotels afford the current real estate prices? Sayoni Bhaduri finds out

With hospitality being courted by real estate majors and realty funds, its place in a realty conference comes as no surprise. The spiralling land prices that are throwing awry calculations of upcoming budget hotels was a topic of discussion, especially since the budget segment is touted as the next big hospitality trend in India.

Chairing the panel discussion was Arthur W de Haast, global CEO, Jones Lang LaSalle Hotels. The panelists were Sean Sovak, director, Beacon Hotels & Resorts, Uday Narain, COO, Ginger Hotels, Dharmesh Jain, CMD, Nirmal Lifestyles, Reyaz Mama, director, Choice Hospitality India, and Amitabh Devendra, president-hospitality and leisure services, Trammell Crow Meghraj

(L to R): Reyaz Mama (Director, Choice Hospitality India Pvt.Ltd), Sean Sovak (Director, Beacon Hotels & Resort), Arthur de Haast (Global CEO, Jones Lang LaSalle Hotels), Dharmesh Jain (Chairman & Managing Director, Nirmal Group of Companies), Uday Narain (COO, Ginger Hotels), Amitabh Devendra ( President - Hospitality & Leisure Services, Jones Lang LaSalle Meghraj)

Haast threw open the floor pointing out that the outlook for India was positive, but the hotel industry as a whole faced challenges, especially the rise in the real estate prices and its effect on the growth of the industry. The discussion then progressed with Sovak taking cue, describing how important it is for the hoteliers in the budget segment to know if they can afford the current rates to build hotels that fall in a particular segment. "Valuations are currently very high. Hoteliers have to be careful, particularly in India. One has to go behind the scene to look for opportunities to find land, which is available everywhere," Sovak said, adding that patience is the key and that the opportunity was spread over a long term, from five-12 years.

On the subject of hotels being treated merely as real estate, Jain opines, "Viewing hotels purely as real estate does not work; it needs to be looked at as a portfolio, which has different asset classes." In a portfolio, he states, 25-30 per cent should consist of fixed income assets. "It is time to change the mindset of build, sell and get out. That is a recipe for disaster," he said. He further added that since the hotel industry is just taking off, it should allow the market to take its own turn.

Narain carried on by discussing Ginger Hotels' development strategy explaining that it is a mix of bought and leased land. "We have faced a problem in key cities for land acquisition; we have been crowded out," he says. He informed the gathering about the future development plans of the group. The solution is to look at mixed-use developments, given the issues which a company often faces in key cities are the high real estate prices.

The discussion then moved to the importance of branding. Mama is of the opinion that there should be a brand value attached to a hotel especially in the next three to five years. Unbranded properties may have excellent products but have small community. "The upside of branding includes high ARRs and quality staff," Mama added. To this Devendra said, explaining the association between a brand and a developer, that it is necessary to convince a developer that a long term asset will not get immediate returns. "With budget brands it is difficult to follow an ownership pattern; leasing option is slowly coming in," Devendra added. Jain said that the Indian consumer is brand conscious and extremely choosy. Hoteliers and developers alike should stick to core competence, to allow experts to handle what they are good at. As to why the group chose Accor to collaborate with he said, "We felt equal aggression on both sides. Enthusiasm goes from top-down and that is important for us. We have to make a conscious decision as the standards are different from what is projected."

Mama interjected, emphasising on the necessity of building long-term relationships. "The need of the day is transparency in deals considering it's a tumultuous business in India, where deals are often broken because expectation of owners and developers differ vastly," he pointed out. Speaking specifically of budget hotels, he said that if hoteliers wanted budget hotels to be profitable they had to be designed so. "It is a fallacy that budget hotels are about the rates - it is the design which makes it cost-effective, the facilities offered, the comfort and quality that the hotel offers that clinches it," he said.

Sovak added that it is a joke that there is no limited source hotel brand in India. "We need to find a fine balance with the right qualified labour and land costs partners," he said, to create a brand. Defending the budget hotels in India, Narain said that in India, ground realities differ, making hoteliers tweak the international template. "We were forced to adapt. In certain cities we are the best hotel present, and we realised we cannot do away with and need to provide F&B options to guests."

The conclusion drawn was that the Indian hotel sector is still in its nascent stage and prohibitive real estate prices still stymie growth. But with proper research there are opportunities waiting to be tapped through different development models. While the template for a budget hotel will adapt to the realities of the Indian market, it is still the segment with the strongest visible growth.