In a bid to recover loans, bankers are pushing investors involved in luxury star hotel properties to exit projects, making 2015 the year with highest number of deals in the sector since 2008. So far in calendar year 2015, seven large deals ranging between Rs 90 crore and Rs 725 crore have taken place in the star hotels’ space, as indicated by data compiled by Jones Lang LaSalle Property Consultants India.
As per Jones Lang LaSalle, there could be three more transactions in the pipeline, taking the total number to 10. Even if these do not materialise, 2015 will still have seen the highest number of transactions in the past eight years, data indicates.
“There are a lot of properties under stress…where there is a high level of debt…servicing it is a problem,” says Mandeep S Lamba, managing director, India, hotels & hospitality, Jones Long LaSalle. “There is no point in holding on to the property.”
For instance, IFCI, in February, had auctioned the Hotel Park Hyatt Goa property, owned by Blue Coast Hotels, to the hotels division of ITC, India’s biggest consumer goods company, in a deal valued at around Rs 515.44 crore.
It used provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, also known as the Sarfaesi Act – a law that allows banks and other financial institutions to auction residential or commercial properties to recover loans.
Blue Coast Hotels had piled up debt of Rs 307.42 crore last fiscal. It wasn’t that the hotel was doing well, but high interest weighed on its earnings The hotel had an average occupancy of 75.2%.
Even bigger chains have been forced to sell. Hotel Leelaventure sold its Goa property in September for a lump-sum consideration of Rs 725 crore to Ceres Hotels, a subsidiary of MetTube of Malaysia, by way of a business transfer agreement. The sale was to tackle the Rs 5,000-crore loan outstanding on its books.
Apart from Blue Coast
Hotels, and Hotel Leelaventure, real-estate developer Unitech had put its 200-rooms Country Inn & Suites hotel in Gurgaon on the block, as it seeks to pay part of its Rs 14,159.24 crore outstanding loans.
Vascon Engineers, another real-estate developer who had built a 176-room Holiday Inn hotel in Pune in September for about Rs 150 crore, exited the business after piling on a debt of Rs 2 crore last fiscal.
In Vishakapatnam, Vishnu Priya Hotels sold its Four Seasons by Sheraton property to SAMHI in a deal valued at about Rs 90-95 crore. In Mumbai, MRG Hospitality and Infrastructure bought Aura Grande hotel property from Annakoot Properties for about Rs 100 crore, as per industry reports.
Blue Coast Hotels and Vishnu Priya are smaller players in an industry where investors ranging from real estate developers to car dealers had invested in building star hotels to gain from increased economic activity since early 2000, industry experts say.
Investors who came in from other industries purchased land at far higher costs and high-interest loans to build luxury hotel properties. But the global meltdown following the Lehman crisis late 2008, and slower economic growth in India has hurt the hotel industry, they said.
While on one hand the hotel properties, when completed, created an oversupply of rooms in the market, slower economic activity led to corporates spending less on travel and stay, resulting in much less-than-expected returns.
Even attempts to recast loans did not succeed following pressure from banks for returns, in a bid to avoid non-performing assets. “The equation is beginning to change,” says Lamba. “Hotel transactions are only going to increase and transactions are going to get realistic.”