Bengaluru hotel assets likely to see PE, HNIs and distressed funds interests

Bengaluru, which termed the Silicon Valley of India, is expected to see a greater interest for hotel assets from private equity (PE) players, high-net-worth individuals (HNIs) and distressed asset funds as they capitalise on opportunities to invest which is expected to be valued at a discount to their pre-Covid-19 values.

The industry, however, expects sale transactions will likely only occur once travel restrictions are further eased and site visits are facilitated. The city is said to have limited distressed asset sales.

“Owing to the ownership profile, a significant portion of hotel owners in Bengaluru are long-term holders with strong balance sheets and are better placed to weather out the pandemic when compared to other markets in India,” said JLL’s India Hotel Recovery Guide- Bengaluru.

However, a few distressed sales may occur in the market from owners that are unable to service their existing debt. Some owners, who had already taken a decision to sell prior to Covid-19, are expected to still go ahead with their monetisation, the report added.

As for the city’s Revenue Per Available Room (RevPAR), Bengaluru has seen the sharpest decline among major Indian cities due to the ongoing Covid-19 pandemic.

As of YTD July 2020, RevPAR declined by 59 per cent but is expected to bottom out in Q4 2020 as the government gradually eases lockdown restrictions and domestic travel begins to pick up, JLL's report said.

“Gradual reopening of the country and easing of travel restrictions is expected to lead to a measured increase in business travel in major commercial markets. Bengaluru is likely to get a bit of business-critical demand,” it added.

Destinations within driving distance, in and around Bengaluru, including golf courses and Ayurvedic centres, are also likely to see an increase in demand.

The city was amongst the first key markets to relax lockdown and opened considerably in early July, with only Sundays designated as days of lockdown. However, with an increase in Covid-19 cases in the weeks that followed, a nine-day lockdown from July 14 to 22 was imposed. Though, from August onwards, night curfews and Sunday lockdowns have been lifted.

The hotel transaction market in India in 2019 was very buoyant, with total deal volume reaching a record ₹ 5,327.5 crore. This included the acquisition of four operational Leela Palace Hotels, a land parcel in Agra, and the “Leela” Brand by Brookfield. These represented the largest proportion of the total transaction volume in 2019 and was also the highest hotel portfolio transaction value in India to date.

“Over the last few years, Bengaluru has evolved into a fundamentally strong hotels market on back of office demand led by IT and Fintech companies. Once life settles around Covid-19, Bengaluru’s hotel market is expected to bounce back, albeit slowly over the next couple of years. The hotels which are linked to office parks could get back to business earlier as compared to the ones with huge banqueting and conferencing facilities. Leisure destinations around Bengaluru such as Coorg, Chikmagalur and Kabini will also likely witness some revenge travel from the city dwellers although this demand could be intermittent,” said Jaideep Dang, Managing Director, Hotels & Hospitality Group (India), JLL.