Hotel chains firm up investment plans

Starwood Hotels & Resorts, one of the world's leading hotel and leisure companies, for the first time is loosening its purse strings to invest in India. This signifies a major shift in the hotel chains' strategy. For the last 36 years, it has operated in the country by franchising its brands, Sheraton and Le-Meridien, for a fee. Unlike sectors like retail and real estate, where foreign direct investment is restricted, in hotels 100% FDI has been allowed since 2001. Despite this, the business has barely attracted $500 million in investments. Certainly, not much home to write about. For the first time though, things seem to be changing. Says Thomas J Monahan, senior V-P at Starwood Hotels, "We are looking to invest in properties and talking to owners of our existing properties. We may also partner with others to bring our other brands into the country. It is unlikely we will own 100% in any single property, 20-25% is more like it." Starwood has nine properties under the Sheraton brand name and eight under Le Meridien operating in the country. It will soon unveil its mid-market brand Aloft. Monahan, however, refused to divulge the sum allocated for the investment purpose. Starwood is not the only one intending to pump in money. There are others too. Intercontinental Hotels Group (IHG), the world's largest hotel group by number of rooms, is not averse to investing in building rooms. Says Markus Mueller, area director, IHG, "We are primarily a hotel management company and do not actively invest in assets. However, there are exceptions and we do support key flagship properties." IHG, which has Crowne Plaza, Holiday Inn and Candlewood Suites as brands under its umbrella, picked up a stake in the 59-room Intercontinental Hotel, situated at Marine Drive in Mumbai after being in the country for close to four decades and lending its brand names to 14 hotels. Explaining the shift, an executive from hotel consultancy firm Mahajan & Aibara said, "Foreign hotel chains are willing to put in money so that the property owner/developer doesn't become a part of another hotel chain. This is because with India emerging as a key destination for almost all the hotel chains, they do not want to miss out on good opportunities in terms of location and positioning." According to Rajeev Talwar, group executive director of DLF, which has a JV with Hilton Hotels: "When a foreign hotel chain invests, they are more committed to deliver results." DLF Hilton's first hotel is expected to open doors in December. Hilton holds a 24% stake and has made an investment of $143 million in the JV company. The JV plans to develop and own 75 hotels and serviced apartments over the next seven years. "Given demand and supply mismatch of rooms, tariffs and margins are high. That explains interest shown by hotel chains to invest,"said Ambar Maheshwari of DTZ, a global property advisory firm.

Courtesy: EconomicTimes
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