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Hospitality Lawyer — Sternlicht’s Starwood Capital to put $500 million in India . . . for Crillon, ‘1’ Hotels and Residences and budget hotel chain, Campanile

Author of www.HotelLawBlog.com
16 November 2006
Hotel Lawyer on hotel investment n India. As hospitality lawyers, we expected it. In my posting from the Phoenix Lodging Conference entitled Hospitality Lawyer – Hotels in China, India and Mexico are capturing the imagination and resources of the hotel industry, I said that I was struck by how the talk was absolutely dominated by discussions of development in China, India, Mexico and Europe. And I wondered out loud if a new era of hotel development outside the U.S. was already underway.

Well, Bloomberg reported on November 14, that Barry Sternlicht’s Starwood Capital has committed up to $500 million to new hotel investment in India. That is one pretty good indication of the trend! In case you missed it, here are the details and what it all means.


The investment

On November 14, 2006, Bloomberg reported that Barry Sternlicht’s Starwood Capital Group LLC would invest up to $500 million in India over the next 3 years to promote its Crillon, “1” Hotels and Residences, and Campanile brands. Starwood is reportedly in talks to buy its first property for $50 million according to Sternlicht in an interview in Mumbai, India. The purchase is to be completed by the end of March 2007.

Why Sternlicht thinks India is a great place to invest now

Why is Sternlicht going to India? India’s expanding economy is fueling demand for more houses, shops and apartments in a nation of 1.1 billon people where the government opened the real estate industry to overseas investors last year. “There is so much demand,” said Sternlicht, 46, who’s targeting an average annual return of 20 percent on investments in India. “Overwhelming demand allows you to differentiate your product and probably sell it through any cycle” of the economy.

According the Asian Development Bank, India will need as many as 10 million new housing units a year by 2030. And according to a Merrill Lynch & Co. report last year, commercial and residential construction in India is expected to surge more than four fold from $12 billion in 2005 to more than $50 billion by 2010. Does this herald hotel-enhanced mixed-use in India like Mexico and other foreign markets?

Rising incomes, easy financing and population growth are driving housing demand as the economy expands 8 percent a year, the fastest after China. That’s why Starwood announced a couple of days ago that it had opened an office in Mumbai, India’s financial capital, and aims to increase the number of employees to 20 from four by the end of next year.

Starwood will consider investments in any Indian city with two million to three million people, Sternlicht said. “Delhi and Mumbai are the frothiest at the moment.” The company will initially focus on developing residential projects, followed by hotels and office space, Sternlicht said. “Residential has the greatest demand,” he said.

Housing Shortage

India, where the per capita income has doubled in the past decade, has a shortage of 20 million housing units, according to Housing Development Finance Corp., the country’s largest mortgage lender.

In an incentive to boost home ownership, the government allows individuals to deduct as much as 150,000 rupees ($3,320) in mortgage repayments from their taxable income every year.

Since February 2005, India has allowed 100 percent foreign direct investment to develop new housing, commercial properties, hotels and hospitals. Foreign investors aren’t allowed to buy buildings already standing or undeveloped land. India also allows foreign funds to own stakes of as much as 24 percent in the nation’s publicly traded real estate companies.

Property prices rose an average 20 percent in the past two years in New Delhi and Mumbai, and by 50 percent in Gurgaon, a township south of the capital city.

The planned renovation of airports in Delhi and Mumbai and a new airport in Bangalore will create opportunities for developers, said Sternlicht.

The importance of the BRAND

Yes. India is hot. It is growing fast and the economy is booming. But don’t miss the importance of the BRAND play here.

I have noted in earlier hospitality lawyer reports that Sternlicht and Starwood Capital are onto the brand play. Sternlicht has announced that he is going to develop a full-fledged brand from the Hotel de Crillon in Paris. We also know that he has launched the “1” Hotel and Residences brand and the Campanile. Look for these to play a strong part in the India investment. We will also talk about some of the exciting things that are happening with hotel branding in upcoming posts.

Look out for China!

Also note, that India is one of the fastest growing economies in the world … after China!!! Look for more soon about the incredible opportunities in China . . . and the risks. See some prior ruminations and the World Bank analysis of business risks of doing business abroad. Hotel Investment Abroad. (see the World Bank ratings as to the relative difficulty of doing business in India, China, Mexico and the United States under “World Bank Statistics.”

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Our Perspective. We represent developers, owners and lenders. We have helped our clients as business and legal advisors on more than $50 billion of hotel transactions, involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.

Jim Butler is one of the top hotel lawyers in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.

Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® — a team of 50 seasoned professionals with more than $50 billion of hotel transactional experience, involving more than 1,000 properties located around the globe.

Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right “fit” for all parts of the capital stack. Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.

Jim is frequently quoted as an expert on hotel issues by national and industry publications such as The New York Times, The Wall Street Journal, Los Angeles Times, Forbes, BusinessWeek, and Hotel Business. A frequent author and speaker, Jim’s books, articles and many expert panel presentations cover topics reflecting his practice, including hotel and hotel-mixed use investment and development, negotiating, re-negotiating or terminating hotel management agreements, acquisition and sale of hospitality properties, hotel finance, complex joint venture and entity structure matters, workouts, as well as many operating and strategic issues.

Jim Butler is a Founding Partner of Jeffer, Mangels, Butler & Marmaro LLP and he is Chairman of the firm’s Global Hospitality Group®. If you would like to discuss any hospitality or condo hotel matters, Jim would like to hear from you. Contact him at jbutler@jmbm.com or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.