Hotel property owners seek ‘incentives' from global chains

Meenakshi Verma Ambwani New Delhi | Updated on November 15, 2017

Hotel chains forced to cough up money, soft loans for key properties

With competition growing among international hotel brands to establish their presence in India, hotel chains are increasingly facing demands from hotel developers and property owners to offer ‘incentives'. These include pre-opening money, soft loans or management fee waivers in management contract deals.

Most international hotel chains follow the asset light strategy and strike management contract deals to operate a hotel rather than build hotels. The practice of paying key money or pre-opening money is getting more prevalent especially among the new brands where they pay a certain amount to a hotel developer while inking the management contract.

Mr Kaushik Vardharajan, Managing Director, HVS Global Hospitality Services India, said, “Some of the new hotel companies that have entered India recently are more open to paying pre-opening money to developers to grab good hotel sites to establish their brand presence.”

This has created pressure on some of the established brands also to woo hotel developers with such incentives, he added.

The amount paid as pre-opening money is usually 2-5 per cent of the construction cost. A leading international hotel chain for instance paid as much as $4 million to a real estate developer for a multiple hotel deal, say market sources.

Mr Siddharth Thaker, Managing Partner at Prognosis Global Consulting, said key money is usually paid by top end hotel brands for marquee locations.

Such incentives are also doled out by established hotel chains when they introduce a new brand.

Mr Nikhil Manchcharam, Vice-President acquisitions and development Starwood Hotels, said, “Hotel developers in India off late expect pre-opening funds from hotels chains for management contracts.”

Another senior executive of a hotel chain said that no hotel chain favours paying up key money as it would need to then pay up every time it signs a management contract with a developer.

Mr Navjit Ahluwalia, Senior Vice-President-hotel development India and Subcontinent-Marriott International, said, “It all depends on how keen a hotel company is to operate a hotel at a particular site and how it strikes the commercial agreement. A good location can sometimes see a bidding war among hotel chains.”

Hotels like InterContinental and Marriott are also now picking up minority equity stake in joint ventures with developers to expand their presence in the country faster.


Published on April 15, 2012

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