A one stop consultancy for hospitality sector real estate
Realty Plus in an exclusive conversation with Nandivardhan Jain, Founder & CEO, Noesis Capital Advisors. A one stop consultancy for hospitality sector real estate Noesis Capital Advisors, an integrated solutions provider for Hotel real estate. With the expertise in hotel real estate advisory, they have resources dedicated to providing end to end solutions for hotels, resorts.
Inception of Noesis Capital Advisors
Noesis, is a decade old organization, started in 2009. Our core focus is on the hotel investment advisory forum. And we provide services to our clients such as research, transaction management, project management, tax indication, private equity all limited to the hospitality space. Some of the largest foreign direct investment transactions have been facilitated by our company.
Last financial year we did a transaction of 50 million dollars, the largest Foreign Direct Investment (FDI) in Indian hospitality industry. Noesis acted as a sole transaction advisor to Masa hotels, subsidiary of an African conglomerate, for $50 million FDI in a 300-rooms hotel project, which is located next to Mumbai international airport.
We also handle a number of domestic investment transactions. Last year we completed around 58 transactions in hospitality space and this year we are targeting to cross that number. We are also advising some 68 international, regional, national brands across the region. Our core clients are the hotel companies like ITC, TAJ and NBFCs who fund hospitality projects.
We are based out of Mumbai, Gurgaon and have satellite offices in Goa, Bangalore, and Kolkata.
Do you’ll work closely with developers?
Certainly. Quite a few professional developers have a hotel as an asset plus in their portfolio, for example, Raheja have a full fledge real estate development company in residential, commercial office space and in retail and they do own quite a few hotels say JW Marriott, Sahara, renaissance and a few others.
International projects in 2019
We predominantly work in the Indian sub-continent. The Masa Hotels project was so far our biggest international venture. Other than that we have a presence in Italy, Europe, middle-east and Africa so we have connection with a huge investor base overseas.
In terms of large markets, India and China are the best two markets for someone to grow and invest across the globe. India is a very vibrant market and the only other market to compete at least in terms of size is China. So if someone needs to grow capital then these are the best two options. Hence, we are very aggressively focussing on the Indian subcontinent as well as aggressively working with international investors for the Indian market.
What is your opinion on the asset-light model?
This model is a very interesting one. The whole reason why the asset-light has become a very popular terminology in last few years is because the real estate cost is very expensive in our country. The hospitality yields is about 3% -5% globally. If you look towards the real estate as on the current date, it will not fetch more than 5% in the first 3-5 years. With acquiring the land today and putting up the capital and the cost of bordering and taking in account the current interest rates, this is what the one can expect to fetch in the initial years. So, this is the reason a number of hotel companies came up with the thought process of going asset light.
Asset light can be in different models-
- Leasing out the asset
At present there are quite a few players actively following this model. It involves a process where you own the real estate and I come with my operational expertise and some funding in form of a deposit or advancement and I run the day to day show. I will give the property owner the fixed rate or variable lease of minimum guarantee, variable lease module and so on. This is primarily what asset light means and this is the model that most players are currently undertaking.
- Management contract
The other option is a pure management contract where the brand provides its services and brand name and runs the day to day show. The profit and loss belong to the property owner. So, largely in the industry it’s the most predominant model. Out of 100, 90 transactions will be based on management contract. And 10 will be on the lease when it comes to asset light.
Is hospitality industry as a whole is moving towards the asset-light model?
Currently in the organized space we have 130,000 room available across the country and in the unorganized space we have 300,000 rooms, so putting together we have 430,000 room available in the country. If I make a comparison with peers, China has around 2.7 million rooms supply and USA has around 5 million plus room supply. India needs more rooms and to achieve that we have to construct more and put in more capital.
When it comes to a hotel operations company, someone has to build more hotels and people with that entrepreneur skill set will definitely get the opportunity to build. There will also be enough support coming from different organizations such as Noesis to give that professional advice and make the most optimum decisions towards the financial aspects.
Coming back to asset light in particular I am of the opinion that such a model works fantastically well with the existing inventory. Now the existing inventory where the hotel owner has invested money and is running the daily operations himself but due to limited rooms at one particular micro market it is not viable for him to have 10 different sales officers. It is also very difficult for him to have quality talent to run day to day show on the basis of one hotel. This is very important when it comes to an individual joining the hotel. The first thing he sees is the growth chart of him. Working in a standalone hotel he is going to be branded as the unorganized sector. So, this makes it very difficult to acquire talent if one is not a branded hotel.
In the last three year conversion transactions is the biggest thing happening. In the last year itself we did more than 30-35 conversions, where it was a standalone hotel and they signed a contract with an organized player and bettered the business. This type of model is beneficial for all the stake-holders, even the asset acquires better returns and is better maintained. Even guest satisfaction is much greater. Overall the right eco-system is built.