Kolkata: Having tasted success with the auction of a five-acre plot, which fetched a stunning Rs276.2 crore in October, the Kolkata Municipal Corporation has cleared the decks to lease out two more plots to hotel companies.
Both plots are on the Eastern Metropolitan Bypass—a 21-km road that connects the airport with the city. Three new five-star hotels are already being built along this road, and two, run by ITC Ltd and Hyatt Corporation, are in operation.
Says Alapan Bandopadhyay, commissioner of the municipal corporation, “We own a few hundred acres of land in and around Kolkata, which we will sell over the next few years. The money we make will be ploughed back into civic infrastructure.”
The first plot to be leased is 3.35 acres. The corporation is going to invite bids for it from companies that have at least three years’ experience in running hotels and a net worth of more than Rs25 crore. Consultant KPMG India Pvt. Ltd and law firm Fox and Mandal are advising on the auction.
Landline: Brokers busy monitoring market variation at Kolkata Stock Exchange, which presently holds a 10-acre plot on a 33-year lease.
The other plot to be leased is 10 acres, but the corporation is going to lease only half of that. The other half will be merged with the adjacent fair ground run by the government.
The 10-acre plot is now held by the Calcutta Stock Exchange (CSE) on a 33-year lease. But the two parties have agreed to terminate the lease. An official at CSE said, “We are happy with the deal the government has offered. The agreement has been finalized, and we are waiting for their green signal to sign it.”
Under the agreement, the corporation will pay Rs4.4 crore to CSE—half the amount paid for the lease eight years ago—and 60% of the lease premium it would get from auctioning the five acres.
The government has also agreed to allot to the exchange, two other five-acre plots—one of them in Rajarhat, the emerging satellite township on the eastern fringes of Kolkata. “These plots will have no end-use restriction and hence make more commercial sense for us,” the CSE official added.
In October last year, Life Insurance Corp. of India (LIC) set a new benchmark by paying Rs55.24 crore an acre for leasing a five-acre property, which has an unusual half-a-kilometre frontage. LIC proposes to build a hotel there.
Some 50 companies, including Emaar MGF Land Ltd, DLF- Hilton venture and Unitech Ltd, had evinced interest in the property. They eventually backed out when the corporation announced the reserve price—Rs276 crore. Kolkata-based Apeejay Group, which runs premium hotels under the Park brand, and LIC decided to stay on but the former chose not to better the insurer’s bid of Rs276.2 crore.
Emaar MGF was the first to raise the bar in Kolkata’s real estate market. In April 2006, it secured the lease of a six-acre plot with a bid of Rs213 crore. Emaar MGF has since announced it would build two 250-room hotels in Kolkata, one in partnership with Holiday Inn and the other with JW Marriott. Both are expected to be ready in two years.
Three months after Emaar MGF checked in, DLF Ltd snapped up, albeit on lease, a 5.5-acre property in Kolkata for Rs154 crore. It announced it would build a five-star hotel in partnership with Hilton.
The 3.35-acre plot that the corporation is planning to auction is right next to the plot that DLF has selected for its Hilton property. In its document inviting bids, the corporation says, “This area could become the most important part of the city and could go on to become the face of resurgent Kolkata.”
Kolkata has five five-star properties with a total inventory of 1,245 rooms. In the past two years, five-star hotels in Kolkata have staged a turnaround of sorts with occupancy and hence tariff growing substantially. Yet, there has been no increase in capacity.
“Two years ago, you could get a room at Taj Bengal for Rs4,500-5,000. Average occupancy was at best 75% even in peak season. Now occupancy is around 90% and you would have to pay upwards of Rs9,000 for a room even at the weekends,” says Indian Hotels-run Taj Bengal’s general manager Taljinder Singh.
The Taj group is building a 200-room business hotel in Kolkata, and is scouting for land for a premium hotel. Eight years ago, it had given up the idea of setting up a second property in Kolkata and returned a plot on the Eastern Metropolitan Bypass that it held on lease.
But, not every group is as excited. EIH Ltd, the Kolkata-based firm that runs the Oberoi group of hotels, for one, did not take part in the auctions. EIH vice-chairman S.S. Mukherji says, “We have no plan to build a second property in Kolkata at present. Our investment priorities are different.”
But, Mukherji admits that for newcomers it could be a different story. “The stock of available properties is limited,” he says, adding, “and the stock of good ones, those that you can consider for building luxury hotels, is even more limited. So, it probably makes sense for newcomers to grab plots even at these fancy prices. But, these investments would probably make sense only in the very long run.”