Hotel operators look towards conversion route for expansion

Nearly two years ago, Palladium, a five-star hotel at Mumbai’s retail and commercial hotspot Lower Parel, underwent a transformation, re-emerging as St. Regis, a global hospitality brand owned by Starwood Hotels and Resorts Worldwide Inc., now part of Marriott Inc.

The ownership of the 390-room property remains with Pallazzio Hotels & Leisure Ltd, a unit of Phoenix Mills Ltd, but under Marriott management.

Such hotel deals— ‘conversions’ in industry parlance—apart from acquisitions of near-complete hotel projects, are gaining momentum in India, as large hotel chains seek to avoid long gestation periods and construction delays associated with building a new hotel from scratch.

Hospitality companies like Louvre Hotels Group, Wyndham Hotels Group and Samhi Hotel Ltd are looking for opportunities at conversions apart from scouting to buy existing properties, said executives from these firms.

According to an April report by global property consultant JLL, around 12-15 such hotel transactions are in the works.

AccorHotels, which has so far built its hotels on its own, is planning to add two hotels this year through the conversion route, said Lokesh Sabharwala, vice-president (development and special projects, India and South Asia), at AccorHotels. However, the company will continue to pursue greenfield projects, he added.

This year, Vadodara’s Surya Palace will become Grand Mercure Surya Palace, and Goa’s Donna Sylvia Beach Resort will be Novotel Goa Donna Sylvia Resort. Hotel operators such as Marriott Inc. and InterContinental Hotels Group (IHG) too, have gone for conversions in the recent past.

“Greenfield hotel development is slowing down and what we are likely to see is a lot of conversions—which means standalone hotels that are independent today but finding the competition tough and are now wanting to become part of the branded inventory,” said Mandeep Lamba, managing director (hotels and hospitality group), JLL India.

According to Pavethra Ponniah, vice-president at ratings firm Icra Ltd, conversion is an easy entry strategy for a new operator into any market, through an established location and product. “Weak performance and markets often lead to a strain between the operator and the owner, triggering conversions,” she added. Among prominent conversions of last year were Pune’s Oakwood Premier becoming Marriott Suites, IHG’s Crowne Plaza changing to Courtyard by Marriott, and Chennai’s Fortune Select Palms changing to Park Plaza.

For US-based Wyndham Hotels, which operates brands like Ramada and Howard Johnson’s, one out of every five hotels in India is a conversion. In the next few years, the company, which operates 28 hotels in India through franchise model, expects as much as half of its hotels in India to be converted ones.

“We prefer brownfield and conversion projects to outright greenfield projects as time to market these is significantly lesser. In India, challenges of greenfield hotel development are immense as it requires close to 200 licenses from commencement of construction to opening. This gets particularly difficult especially in case of one-time or first-time developers,” said Deepika Arora, regional vice-president (Eurasia), Wyndham.

Ashish Jakhandwala, managing director and CEO at Gurugram-based Samhi Hotels, agreed there are huge opportunities to buy or re-brand local hotels.

“The best use of our capital for the foreseeable future is not to do new development but just acquire assets. We also do a lot of repositioning of local hotels into an international brand. We see that opportunity continue to grow,” he said. The company operates around 18 hotels. Four to five hotels are lined up for opening this year.

Vimal Singh, managing director (South Asia), of Shanghai-based Louvre Hotels Group, said few builders now want to develop hotel properties because of the real estate slowdown. “We are not separated from real estate. We see more opportunities in the existing or brownfield developments. They will be the focus for the foreseeable future,” he said. Earlier this year, Louvre Hotels bought a majority stake in Indian hospitality firm Sarovar Hotels Ltd, which operates around 75 hotels in India, for an undisclosed sum.