For instance, New Delhi-based Parsvnath Developers recently prepared an information memorandum for the purpose. “We plan to raise money for hospitality projects but currently it is in an early stage of discussion,” said an official on condition of anonymity. The company has expressed its intention to focus on six projects in Hyderabad, Ahmedabad, Lucknow, Goa, Mohali and Shirdi.
K Ramakrishnan, Executive Director and Head, Investment Banking, Spark Capital, said, “Banks are still a little averse to lending to the hospitality sector even though signs of economic revival are looking imminent.”
Tarandeep Singh, Principal Consultant (hospitality), Technopak Advisors’, said, “PE funds are currently more liquid than bank finance and many funds have past experience of investing in hospitality.” He added that there are around 15-20 PE players who are scouting for good bargains in the budget hotel segment.
PE players like S Sriniwasan, CEO, Kotak Realty Fund, said that the hospitality business in India is promising from a long-term perspective despite the current challenges. “Despite the capital-intensive nature and high cost of land, I think the hospitality business is very promising. The need for hotels is only going to pick up as the Indian economy grows, he said.”
According to data provided by Venture Intelligence, a research service focused on PE and M&A deals, in 2007 there were nine PE deals in hotel projects worth USD 343 million and in 2008 there were 11 deals worth USD 246 million. So far this year, there have been five deals worth USD 74 million.
Arun Natarajan, Founder and CEO of Venture Intelligence, said that its real estate and hospitality focused PE funds are looking at investing mainly in hotel projects. “These funds will try and replicate the global hotel management model in India. Under this strategy, it would either build a new hotel or buy an existing property and then strike a deal with hotel firms for branding,” he added.
Realty companies are looking at Joint Ventures as well as the special purpose vehicle (SPV) model to partner with PE firms. Some PE firms are also looking to buy out assets of distressed hotel projects. Duet India Hotels, a USD 166.5 million fund that is a part of Duet Private Equity (DPEL), which acquired Dawnay Day Hotels for USD 33 million last year, is in the hunt for distressed properties.