Putting A Partnership To Work

Fresh after announcing an alliance with ANAROCK, Stephen Rushmore Jr, president and CEO of HVS, discloses how the two companies will jointly tap India’s burgeoning $210 billion hospitality market.

By Vinita Bhatia

It was only last year that HVS, a global hospitality consulting firm, exited the Indian market after a successful two-decade run. Manav Thadani, the person who established the company in the country and was synonymous with it, decided to part ways with it to start Hotelivate.
Now, HVS is kick-starting its second innings in the Indian hospitality domain and has tied up with real estate services firm ANAROCK Property Consultants. Together, HVS ANAROCK will focus on brokerage, feasibility studies, operator searches, appraisals, executive search and other hospitality sector consulting and advisory services throughout South Asia.
Anuj Puri, chairman, ANAROCK Property Consultants takes on the added role of chairman, hospitality at HVS ANAROCK and the firm’s soon-to-be-appointed CEO will report to him. Shobhit Agarwal, MD and CEO, ANAROCK Capital, will head the transactions vertical at HVS ANAROCK.
Stephen Rushmore Jr, president and CEO of HVS, tells us why he is excited about this partnership and how together with ANAROCK, they are targeting a concentric outward growth into the hottest South Asian markets to increase HVS India’s revenues by up to 75% over the next two years.

What factors have emerged as an impetus for growth in the Indian hospitality business over the past couple of years?
India is home to a wealth of strikingly different geographical characteristics, thousands of kilometres of coastline with attractive beaches, in addition to ancient ruins, diverse cultures and landscapes. Indeed, India offers immense growth potential to the tourism and hospitality industry. Apart from its treasury of tourist destinations, the country has emerged as a key business destination over the years, owing to the burgeoning growth of its manufacturing and services sectors. Diversity is the very essence of India, be it culture, tradition, religion, language or landscape. The Indian peninsula has about 7000 kms of coastline, 10 biogeographic zones and 36 World Heritage sites listed by UNESCO. It is unsurprising that India is a multi-destination country that offers immense growth potential for tourism and the hospitality industry.
Apart from historical tourism, contemporary India has become a preferred business destination. Some factors that have helped in the industry’s growth include the e-visa reform that promotes easy entry of foreign tourists, which has been increased to over 160 countries. The rising medical tourism has seen patients from across the world come to India for good and cheap medical treatments.
Additionally, a diverse portfolio of niche tourism has emerged, encompassing cruises, adventure, medical, wellness, sports, MICE, eco-tourism, film, rural and religious tourism. The rising business opportunities in India has led to an increase in domestic and foreign travellers, while increasing disposable income has led to an rise in globe-trotting Indians who look to avail similar hospitality facilities in India.

What are some reasons for structured financial and institutional investors showing an increasing interest in acquiring assets in the hospitality sector?
With India shining on the global map, there is a notable rise in the tourists arriving in India for leisure and business purposes. As a result, during the past few years, occupancy and room rates have improved. This turnaround of the hospitality business has led to an increasing interest from the structured financial and institutional investor to acquire hospitality assets. The investors are not only trying to get into the sector by traditional means of investments but are also considering investing in tech-enabled startups that have changed the ways and means of doing business in this sector.
However, a clear emerging trend is that the investors are now looking at long-term investment in the sector and trying to acquire a portfolio of assets rather than single hotel deals.

What is the best time to buy hotel assets during a hotel’s lifecycle to mitigate the challenge of price expectations between buyers and sellers?
Hotel development and operations is a long-gestation business and it takes significant time to stabilise the same. As a result, the best time to buy a hotel is when there is a definite view of the occupancy, room rates and future cash flows. Albeit the Indian hospitality sector is on a revival mode, investors are now investing cautiously as they have previously burnt their hands in a few deals.

The real estate business in India has been going through some tough times. Do you think this effect will rub off on the hotel sector as well, since it is not very removed from the other?
The structural changes and policy reforms have had a major impact on the Indian real estate sector. Whilst the crackdown on black money, implementation of RERA and GST has imbibed the much-needed financial discipline, transparency and accountability in the sector, the business has surely paused down for some time. Also, we may witness a massive consolidation in the sector in the next 12 to 18 months or so.
These structural changes and policy reforms will surely have a rub off effect on the hotel sector as well. Whilst, with GST implications the overall cost of occupying a room have increased, the stricter RERA regime has also led to a control over the mode of operation. However, with massive inherent demand for hotels in India, it is just a matter of time that the sector will start to grow and we are already witnessing a marginal rise in demand.

In 2016-17, hotel occupancy in India was 65%, which was the highest since 2008. However, average room rates (ARR) appreciated by a marginal 2.4% in 2016-17 over the previous fiscal. Why was there such a stark disparity between the two, and why did ARR not show significant growth?
ARR have not risen significantly due to an existing demand-supply mismatch of hotels. In addition, GST has had its own share of impact on the overall business as the overall room rate increased for the guest. Once the demand-supply equilibrium is restored, there will be sanity in the sector and we will witness a rise in ARR. The rise in hotel occupancy rates is a good lead indicator that the sector is likely to be in focus in the near future.

In the shifting balance of supply-demand, do you overall demand outpacing supply in India?
Demand is outpacing supply in some categories, such as in good budget hotels in business-oriented areas. In this category, there is strong competition from serviced apartments, but this sector is largely unregulated and the organised hospitality industry needs to give a befitting response to the demand.

In this a scenario, how will HVS ANAROCK help industry stakeholders make the most of the investment opportunity that exists in the hotel business, especially in the current time frame?
The way forward for HVS ANAROCK is to advise clients from both the demand and supply sides, in terms of sourcing the right opportunities and creating a favourable disposition environment. To this end, we will deploy our funding expertise resources.

Since HVS will offer advisory and feasibility services in India, will you also advise owners and operators to consider enhancing ARR and also help them in drafting strategies that will help them gain a competitive edge?
Yes, consulting is a strong element of our and, we will be helping hoteliers and hospitality-focused investors in assisting them with their business strategies.

How do you plan to offer more value-added, contemporary services to stakeholders in the Indian hotel industry? How will you extend your expertise so that they can sweat the asset and optimise its utility?
The HVS methodology of determining value is widely used throughout the world and we literally wrote the book on this process over 30 years ago. Leveraging this methodology along with our enormous repository of data enables us to provide superior results through unrivalled hospitality intelligence.

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