First Class Hotel - Metro City / Periphery i.e.

Chennai & Bangalore Outer Road

 
Sustainable ARR:   $100-$140 - Equilibrium of Supply and Demand
Average # of Keys: 180
Gross Floor Area: 75m2
Gross Build Out: 13,500m2
Gross Land Parcel:  1.67 acres
Price per key excluding land: $105,000-$110,000
Cost of Land as a % of Total Cost:   35%
Total Cost = $30 Million
Return on Capital:   14%
IRR:   18-21+%
 
 
Upper Up Scale Hotel
 
Sustainable ARR:   $200-$225 - Equilibrium of Supply and Demand
Average # of Keys: 325
Gross Floor Area: 90-95m2
Gross Build Out: 31,000m2
Gross Land Parcel:  3.5-4 acres
Price per key excluding land: $225,000
Cost of Land as a % of Total Cost:   45%
Total Cost = $120 Million
Return on Capital:   17%
IRR:   21-23 up to 25+%
Upon reversion significant multiple (Double Value)
 
Economy
 
Sustainable ARR:   $55-$75 - Equilibrium of Supply and Demand
Average # of Keys: 120
Gross Floor Area: 35m2
Gross Build Out: 4,500m2
Gross Land Parcel:  1/2 acre
Price per key excluding land: $45,000-$55,000
Cost of Land as a % of Total Cost:   30%
Total Cost = $7 Million
Return on Capital:   18%
IRR:   25%+
 
Budget
 
Sustainable ARR:   $22-35 - Equilibrium of Supply and Demand
Average # of Keys: 80-100
Gross Floor Area: 22-25m2
Gross Build Out: 2,000m2
Gross Land Parcel:  1/4 acre
Price per key excluding land: $22,000
Cost of Land as a % of Total Cost:   20%
Total Cost = $2-$2.5 Million
Return on Capital:   17.5%
GOP:   70%
 
Regulatory – India is in early stage of development with signs of issues that remain, not if, but when.
Development – Relationships are important, so is expertise and experience.
Management – Adequate to meet 5x-10x growth?   Capable of project management on a pan-India basis.
Execution – Suppliers / Construction companies band with.    
Capital Structure – Money raising capability is key.   Local leveraging somewhat constrained, overseas
leverage limited to certain segments, but not the case for hotel development.
Demand – Tier I, II, III Income segments upper versus middle income.   Metro vs. High Growth
Supply – Not a huge concern at this time in the cycle.
Exit – Timing and methodology
 SPV vs. Enterprise level investment
 Self liquidated projects or partial exit to mitigate land price risks
 Developer / Operator partner and Expertise / Relationships
Defined Pre-Development plan:
Clear understanding and defined objectives: what, why, how, vision, objective driven, instinct driven,
emotionally driven
1)       Understand the market: Answer what the market really requires?   Demographics and
psychographics
2)       Understand the product:   What currently exists, what is needed, commit to a brand, resist brand
creep, know comparables, consider tech/environmental differentiators
3)       Defined program, quality, budgets, and time
4)       Engage and manage the correct support teams: consultants, contractors, suppliers, know product
and locality and respect local relationships
5)       Clearly define involvement of all parties
6)       Understand construction as in commodity pricing, tender climate, labor costs
 
Hospitality Specific Pre-Development plan: 
1)       Alignment of Service Areas (Public & Back of House) to achieve a low cost and high efficiency
design
2)       Design Development in coordination with architects and interior designers for creative yet
operationally practical design
3)       F&B designs and plans to ensure maximum profit margins
4)       Development and planning of all BOH areas
5)       Technical and operational planning
6)       Quality and cost control of equipment and materials
 
Institutional capital will bring better corporate governance practices, improved professionalism, improved
transparency and information disclosure to India in the long term.  I am confident that Lotus has a  clear
and well articulated strategy, a track record, a committed management team, access to deal flow preferably
proprietary, a defined investment process, and risk mitigation.