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Making room at the inns

Parul Gupta

It will definitely be a desirable address when it is built. The luxury apartment block will have a spectacular view of the Arabian Sea and private beach thrown in for good measure.

If that isn't enough there's a dash of history and religion thrown in with the Mahabalipuram temple only a stone's throw away.

That's one of the options being tossed around by the G R Thangamalagai Group, which has bought the sprawling 50-acre complex that was till recently the ITDC Ashok Hotel, Mamallapuram.

With heaps of space at their disposal the hotel's new owners are looking for ways to maximise their returns. Top of the list is the luxury apartment block.

The Thangamalagai Group isn't the only set of new owners looking for ways to ensure that the money keeps rolling in from their new investments.

As the ITDC sell-off moves into high gear it is leaving a trail of new owners who are putting together plans for everything from new golfing greens, to executive apartments and convention centres. And, yes, they will also be running new, smartened up hotels.

Take a look at the blueprints being drawn up by businessman Lalit Suri who has given his hotel empire a booster shot by buying three ITDC hotels including the Bangalore Ashok, Udaipur's Lakshmi Vilas Palace and a rather rundown property in Khajuraho (Suri is also building two more hotels in Mumbai and Goa).

Suri's most ambitious plans are, inevitably, for the 172-room Bangalore Ashok, which he would like to convert into a top-notch hotel competing against the best the city has to offer - the Oberoi and Welcomgroup.

Eventually, he would like to build a 1,500 seater convention hall to give the hotel an edge over the others. For starters, he plans a top-to-bottom refurbishment that will include new facilities like a state-of-the-art spa and squash courts. The 10.33-acre property will also be completely landscaped.

These plans will involve spending big bucks but Suri reckons it will be worth it. He has already dug deep into his pockets and made an upfront payment of Rs 40 crore (Rs 400 million), and will be paying Rs 4 crore (Rs 40 million) annually as lease charges.

In addition, he will be spending another Rs 40 crore on refurbishment in the coming years.

Make no mistake - these would-be hoteliers are going into the new businesses with their eyes open. They are writing out cheques for hefty sums and they know that it is essential to squeeze every bit of value from the properties. For many this is their first foray into hoteliering - the new buyers include publishers and steel merchants - and they bring a fresh eye to the business.

One big advantage that added to the value of the ITDC properties is that they came with a lot of land attached. Most were built in a more gracious era when land was not worth its weight in gold.

Take the Qutab Hotel built on a 4-acre plot on what was once the outskirts of Delhi. Today the Qutab is in the heart of ever-expanding south Delhi and considered prime real estate.

Sushil Gupta, who is also a promoter of Delhi's Hyatt Regency, has bought the property along with the Luxor Group (which made its fortune in the writing instrument business).

For starters, Gupta is hunting for a new name for the 92-room hotel. But he has already decided to add another 100 rooms and about 20 apartments. The cost: around Rs 15 crore (Rs 150 million).

In fact, land was the key factor that convinced the would-be hoteliers to put in bids for the ITDC properties even though they were all desperately down-at-heel.

Says Suri, who startled competitors with his aggressive bids: "There is surplus land available and facilities like a convention centre are not available in Bangalore."

Land at relatively cheap prices was one of the key considerations for many buyers. But the right location was equally important.

Take a look at Hotel Lodhi, the dowdy property just across the road from the Oberoi, Delhi. The Lodhi has now been bought by Silverlink Holdings, which is rated as the world's top resort chain. Sources close to the company say that the group will put its best foot forward to develop its first property in India. It will certainly compete with the Oberoi across the road.

But for some buyers, land - by itself - was only one part of a larger gameplan. Take Lajpat Rai who started out as a travel agent and who has already placed big bets on the profitable future of the Buddhist circuit. Rai's Lotus Nikko Hotels snapped up the Hotel Bodhgaya Ashok, which is spread over 4.78 acres, for a mere Rs 2 crore (Rs 20 million).

Rai has impressive plans for the hotel. He has also bought a disputed 2-acre plot next to the former Bodhgaya Ashok and is planning a 50-room luxury complex on the combined sites (the hotel currently has 32 rooms).

He reckons it will need another Rs 2 crore to turn the property into the only luxury hotel on the Buddhist circuit. Says Rai: "The hotel is in shambles. No investment has been made and it has not even been painted for the last over 10 years."

For Rai the hotel will be a giant addition to his existing chain. Back in 1984 he opened a hotel in Kushinagar (where Lord Buddha died) and then built a second one at Sravasthi (where Buddha spent 25 rainy seasons).

He is also planning to build a new 100-room hotel at Gorakhpur, which is the centre of the Buddhist circuit at an investment of Rs 8 crore (Rs 80 million).

Other big plans for the future: air-conditioned transport services that will cost around Rs 10 crore (Rs 100 million). Analysts reckon that Rai will be a big winner when tourism minister Jagmohan's plans for the Buddhist circuit are put into place.

Other buyers are also betting that India's tourism industry can only travel in one direction: up. In Kerala there's the Gulf-based Mohammed Ali-promoted M Far Group that has just bought the Kovalam Ashok.

The group also owns Le Meridien in Kochi and plans to establish hotels at various locations in Kerala. At Kovalam the group plans to add an ayurveda centre and wants to position it as an international resort.

Or, hop across the country to the country's hottest tourist destinations: Udaipur and Khajuraho. Suri wants to position the Khajuraho Ashok and the 54-room Lakshmi Vilas Palace Hotel in Udaipur as destination resorts.

He wants to add another 30 rooms to the existing 40 rooms at Khajuraho at an investment of about Rs 5 crore (Rs 50 million). To ensure that he gets a return on his investments he is also lobbying heavily for better roads and other infrastructure in and around Khajuraho.

Similarly, Suri will spend about Rs 20 crore (Rs 200 million) on the Lakshmi Vilas Palace, a heritage property built in 1910. The money will be spent on restoring the original 11 palace rooms to their original condition and upgrading the other 44 rooms.

A new health club and sports complex will also be thrown in but Suri can't add much more to the hotel because it is a heritage property in a conservation 'red' zone.

These new managements will, in many cases, change the hoteliering landscape of top cities. Take the Kanishka Hotel in Delhi. All these years, it has steadily declined until it became the poverty-stricken hovel across the road from the Meridien and not far from the Intercontinental. All that is about to change. Kanishka, the Cinderella at the ball, will be turned into a super-smart luxury hotel.

The new buyer is the Eros Group, which already runs the Park Royal Intercontinental in south Delhi.

Satish Sud, group managing director, the Eros Group, which also has interests in real estate, says there are grand plans for the 315-room property and that more than Rs 150 crore (Rs 1.5 billion) will be invested to turn it into a top-class hotel. About Rs 40-50 crore (Rs 400-500 million) will be spent in the next year.

On a slightly different note there's the MBD Group, which has diversified from publishing into the hotel industry.

The group has bought the 152-room Kolkata Ashok, along with the airport restaurant, for Rs 20 crore (Rs 200 million). The Kolkata Ashok will be the group's first operational hotel but it has also started building another Rs 40 crore hotel in Noida, which will be run in collaboration with the Radisson chain. While the MBD Group will manage the property, the Carlson Group (which owns the Radisson brand) will provide management consultancy to the group.

The MBD Group plans to refurbish the Kolkata Ashok and build a new wing. It hasn't worked out yet how much money will be needed for the project.

"The Kolkata property would help us establish our presence in the hotel industry," says Sonica Malhotra, MBD Group executive director.

Malhotra is the driving force behind the group's thrust into the hotel industry and she is also supervising the construction of two more five-star hotels in Jallandhar and Ludhiana.

Similarly, another rank outsider is steel trader R P Mittal who runs the Rs 150-crore (Rs 1.5 billion) Mittal Ispat. The Indraprastha Hotel will be positioned as a mid-market hotel in a part of Delhi that is gasping for middle to budget rooms. Mittal says that the giant 558-room hotel will be a test case before he decides whether to open more hotels or not.

Says Mittal: "The 558-room mid-market hotel, which is also the biggest such hotel in Asia in this category, will be upgraded with central air-conditioning, power back-up, water treatment facilities and telephones."

For some owners, however, the real estate has been the lure that brought them into the bidding game. Look at Loksangam Hotels and Resorts, the new owner of the Aurangabad Ashok.

The company says it will use part of the hotel's 14.48-acre estate as real estate and will parcel part of the land into plots and sell them. There are issues of land use conversion, but the company believes these aren't insurmountable.

As one government official says: "Government organisations are bound by rules which prevent them from going out of their way to get certain things done."

The divestment of these 18 hotels spread over 225.79 acres has earned the government Rs 400 crore (Rs 4 billion). The values of the properties are set to soar. But as the owners get ready to fling open their doors they will have to work hard for the profits.

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