CMD Interview: Jitu Virwani of Embassy Group on Trends, Strategy and Growth

By aligning themselves with global hospitality brands such as Four Seasons and Hilton, and positioning the hotels within their vibrant business parks, the Bengaluru-based marque realty company is aiming high.

Embassy Group, Jitu Virwani, Hospitality industry, Trends, Hotel management, Investment, Inventory, Brand

Can you tell us about Embassy Group’s initiatives in the hospitality industry? Which are the big projects that your company has executed till date?

Embassy is one of the leading property developers in India, with a track record of over three decades in real estate development. It has an extensive land bank across the country and has developed over 40 million sq.ft. of prime commercial, residential and retail space in India, as well as in Malaysia and Serbia.
Embassy’s portfolio of real estate development spans the commercial, residential, industrial and warehousing, retail and hospitality segments of the real estate industry. Embassy’s hospitality business commenced with the 247-keys Hilton at Embassy GolfLinks. Since then, we have acquired the legendary Four Seasons as a brownfield mixed-use project in 2014, and the landmark 200-keys Le Meridien Hotel near Bengaluru Gold Club in 2016. While the Four Seasons Hotel is scheduled for opening first quarter of 2019, the Hilton Hotel and the Le Meridien are operating successfully in their segments.

Which are some of the leading hospitality brands that you have partnered with, till date?
We have partnered with the world-renowned Four Seasons Hotel and Resorts brand to open the first combined Four Seasons Hotel and Private Residences in the country. We also have a growing footprint with Hilton Worldwide and the Le Meridien brand, which is now a Marriott brand (erstwhile Starwood).

What is your aggregate room inventory across India?
We have 450 operational rooms across upscale categories in Le Meridien and Hilton. We have planned for 1,400 keys over a four-year timeframe, across luxury, upscale and midscale segments. These are all international [hospitality] brands and [will be built] in Bengaluru, Embassy Group’s headquarters.

How do you select which global brands to work with? And how do you determine which format is more scalable — limited-service or full-service?
Our selection of brands is based on what fits best with our hotel strategy and resonates with our target audience. Our aim is to provide our corporate occupiers world-class services and recognisable International brands that offer products at two price points, good quality F&B offerings, and a capacity and ability to manage MICE/convention space operations. We have strategically partnered with Hilton as they support us on all of the above.
Through our acquisitions, we are also working with world-class Four Seasons luxury brand and Le Meridien, now a Marriott brand after they acquired the global portfolio of Starwood.

What are the operational factors that have a bearing on new projects/existing partnerships?
That is a great question. The overall efficiencies are achieved by creation of various eco-systems, and the social infrastructure that enhance the value of business parks. This leads to overall increase in rental yields. When we house hotels in mixed-use developments, they are supported by commercial spaces and F&B-led retail, which makes for more cost-efficient construction. Consequently, we see better valuation potential. We work with parent companies and brands that have many hotels across the city, in different micro-markets. This leads to sharing of resources and lower procurement costs across assets.

Why has the company invested in dual-branded properties? What are the benefits they offer over single brand hotels? What are the challenges of owning dual-branded hotels?
Historically, we would not have invested in stand-alone properties, unless it tied in with our strategic objective to support business parks or be part of a lucrative mixed-use development. We have made two valuable investments in the recent past — the acquisition of the brownfield Four Seasons Hotel & Private Residences in 2014, followed by the Le Meridien Hotel, which is beautifully located in CBD — opposite the Bangalore Golf Club , near Raj Bhavan in Bangalore, and enjoys the city’s long-term patronage.

What have been your key learnings and takeaways from your initial hotel projects?
The development of hotel projects within our business parks enhances the value of our parks. They are also strong enablers to our commercial office parks business. We enable the hotels to establish market leadership in the space of business hotels. At the same time, the tenants are provided an elevated service within their working environment.
Based on corporate occupiers at Embassy Manyata Business Park, Embassy GolfLinks and Embassy TechVillage, we know that they look for hotels at two price points, with sufficient convention facilities and in a good location, at the mouth of the business park.
These learnings have been adopted at our new projects — 620-keys dual-brand upscale Hilton and midscale Hilton Garden Inn Hotel at the Embassy Manyata Business Park, and replicated with 500-keys Hilton & Hilton Garden Inn at Embassy TechVillage Business Park.
The movement in our business parks is typically between Mondays and Fridays, and our hotels record the maximum capacity during these days, with occupancy tapering during the weekend. This offers a large opportunity to execute rate management strategies during peak loads, to capture the value at our operational hotel. We are pleased that we have attained a double-digit growth in ADR this year.

What are some industry trends that are influencing the hospitality business, especially from the development perspective.
The city of Bengaluru has been retaining its status as the busiest airport in South India, and India’s third busiest airport after New Delhi and Mumbai. The Kempegowda International Airport recently announced a passenger traffic of 25 million in calendar 2017. This represents a growth of 13% over calendar 2016.
Bengaluru is also among India’s strongest RFP-driven hotel markets, with large international and domestic companies operating here. There is a vast 118 million sq.ft. of Grade A commercial space in the city, with another 27 million sq.ft. under construction. It is one of the most sought-after rental and lease markets in the country.
Backed by this very healthy growth in commercial demand, Bengaluru hotels have achieved 10% growth in RevPAR in 2017 (as per latest Horwath Report). All segments have performed well, with the upscale and luxury segments achieving the best ADR numbers since 2011. This bodes well for our developments in the hospitality segment.
Our flagship hotel, Hilton Embassy GolfLinks raised the bar and outperformed the market with a REVPAR increase over the last year. Embassy will strategically focus on increasing ADR in 2018, with the support of occupancy at the hotels at its peak.
It is interesting to see that there is immense potential and opportunities in the hospitality segment. We are seeing many portfolio and stand-alone properties on the block/for sale — and there is an anticipation that market performance will allow hotels to generate sufficient yield, thus garnering investor interest. It will be fascinating to see how this plays out.

Which market segments are driving maximum growth in the hospitality and travel industry?
Bengaluru is a city with a double digit growth in domestic corporate travellers. Our tech park hotels are dependent on corporate travellers from the large MNCs with global and domestic offices. They are comfortable with our brand offerings at the business parks, where we have also created convention spaces to cater to more MICE and social events in the city.

Can you take us through your expansion plans?
We currently have three hotels under construction. The biggest and most luxurious in our portfolio is scheduled for launch Q1/2019 — the legendary Four Seasons, with 230 keys, as part of a luxurious mixed-use development. This will also include 105 Four Seasons Private Residences, with adjoining commercial and retail spaces. Our largest proposed development, the dual-branded Hilton & Hilton Garden Inn Hotel, with a large convention centre, is under construction at Embassy Manyata Business Park. We have also signed another pair of dual-branded Hilton and Hilton Garden Inn hotels at Embassy TechVillage Business Park, located in the Outer Ring Road in Bengaluru. This would translate to a total of seven hotels in the next four years.

Are you looking at foraying into new geographies?
Embassy Hospitality is open to foraying beyond Bengaluru, with a plan to develop a hotel platform with diversified hotel assets. We are bullish about the hospitality space in India and recognise the opportunities in this segment, including hotels. According to our analysis, the key markets where we would like to be include Delhi, Gurgaon, Mumbai, Hyderabad, Pune and Chennai. We have existing business and synergies in these markets. We are also open to looking at high-growth and RevPar markets such as Goa, to consider strategic and valuable acquisitions that will complete our portfolio.
How are you trying to grow your portfolio — through greenfield projects or by acquiring existing hotels, or a mix of both?
For the hospitality vertical, the Embassy Group is strategically focused and committed to building hotels (preferably as a part of mixed-use developments) in each of our business parks. These are typically greenfield and we are assigning the management to professional hotel management companies like such as Hilton, a brand known to, and preferred by our tenant base in the business parks. Our corporate occupiers include large Fortune 100 multinational companies.
With our experience, we have seen that hotels enhance the value of our business parks. Embassy’s long-term strategy to build hotels within our business parks will not only enable the hotels to benefit from the captive demand from our corporate occupiers, but also create market leadership in the space of business hotels, while providing tenants an elevated service within their working environment.
Typically, we would not invest in stand-alone properties, unless it ties in with our strategic objective to support business parks or is part of a lucrative mixed-use development. We have made two valuable investments in the recent past with the acquisition of the brownfield Four Seasons Hotel and Private Residences in 2014, and the Le Meridien Hotel.

How do you analyse the growth potential for the hospitality industry?
It is interesting to see that there is an upswing in the business cycle, with an immense long-term potential in the hospitality segment. As I mentioned earlier in the interview, we are also seeing many portfolio and stand-alone properties on the block/for sale. There is an anticipation that strong asset management and brand associations will allow hotels to generate upsides/sufficient yield, thus garnering investor interest.

Where does future growth lie for Embassy Group?
The plan is for Embassy Group to be an owner, developer and asset manager of diverse hotel portfolio that is profitable — with an emphasis on location, design and development, with globally leading brands. We are taking a long-term view on this with an investment approach, seeking healthy returns on our acquisitions in the long term.
Based on our approach, we identify our growth via investing in operational hotels in diversified locations and leveraging branding and operational tie-ups while minimising development risk. Our strategic competencies are development expertise, financial stability and strong industry relationships.
We are looking to acquire undervalued, in-distress assets, where there is an opportunity to reposition via rebranding or capital improvement plans, thus enhancing the owners’ return on the assets.
However, we approach this space with a bit of caution: we recognise that this segment of real estate is not standardised and the returns are based on human expectations on both sides. Alignment is critical to securing the right deal. We are taking an opportunistic approach and willing to wait to get the right deal at the right price.

In addition to your hotels, what are the adjacent spaces you are investing in?
We have recently established Embassy Leisure, which will specialise in managing sub-verticals in the restaurants, clubs, food courts, events and food delivery e-commerce spaces. We have successfully operated the marque Sanchez and Sriracha restaurants at UB City for several years now — and are expanding the footprint of these brands. In addition, we made a strategic investment in JSM Restaurants that operates Shiro, Hard Rock, Traders Wick and California Pizza brands across major metros.
Embassy Leisure will also manage our private clubs. We launched the BLVD Club in Bangalore in December 2017, and have seen an overwhelming response. BLVD Club’s niche offerings include a perfect mix of social, business, leisure and recreational facilities. The club also connects its members with a curated selection of lifestyle experiences, bespoke privileges and affiliations. Above all, it will be home to a community of likeminded individuals with a taste for the finer things in life.

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