Why Goldman Sachs is investing heavily in India's hotel industry

Global investment bank Goldman Sachs has bought a stake in a four-year-old hotel investment and development company SAMHI Hotels, investing Rs 441 crore (US$70 million) in the company. 

The new funding raised by SAMHI will be used for acquiring hotel assets in India over the next 15-18 months. SAMHI bought Ahmedabad's Ganesh Meridian Hotel last week for Rs 135 crore.

SAMHI Hotels owns 16 hotels operating under major brands, including Courtyard by Marriott, Hyatt Place, Fairfield by Marriott, Four Points by Sheraton and Formule1 as of December 2015. Another 10 hotels are under "advanced stages" of development, the Times of India reports, and are due to open in the next 12 to 18 months. In a statement, SAMHI Hotels said that by mid-2017, the company will have 3,900 rooms under five brands in 12 cities.

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"Investing capital always depends on opportunities available in the market," Ashish Jakhanwala, founder and CEO of SAMHI Hotels, told DNA India. "We are not a fund and hence not constrained on the deployment of money being raised. We will invest when there is a right deal. However, seeing the pipeline, we should be able to commit this capital (raised from Goldman Sachs) over the next 15 to 18 months." Elaborating on the company's business model, Jakhanwala said that the focus continues to be on development, acquisition and ownership of branded hotels located in prime markets throughout India.

Value in India
Goldman's move is holding steady with recent investment in India's hospitality sector. Just a few weeks ago, Brigade Hospitality Services, a division of real estate developer Brigade Group, announced plans to build an estimated 2,000 hotel rooms across 10 hotels in South India and GIFT City in Gujarat over the next two to three years. The total investment is likely to reach Rs 1,000 crore. 

Wyndham, meanwhile, announced plans to open 50 hotels in India by the end of 2018, as well as 35 affiliated resorts. "No market is growing faster than the Indian market and it has a greater potential particularly in the timeshare side in the world," Wyndham Worldwide chairman, president and CEO Stephen Holmes said in October. "It will have a much larger share for us in the future," he said. Wyndham, he added, is the fastest-growing hotel franchisor in the country, with nearly 200-percent growth in India over the past five years. 

Hotel companies listed on the Indian stock markets are seeing substantial growth, with the majority of the leading hotels stocks gaining between 10 percent and 12 percent as of last month. Keshav Baljee, promoter of Spree Hotels and ZipRooms, said that the growth is driving talks of re-rating of the sector. "The industry is also going through a consolidation stage, and going by the news reports, we have started to see some activity of hotels either getting merged or acquired by stronger players," Baljee said. "I see an increase in the mergers and acquisitions as quite a few hotels are highly indebted and they will have to liquidate assets to cut debt."

Meaning for Goldman
Goldman Sachs India chairman Sonjoy Chatterjee echoed that sentiment, telling DNA India that the country is seeing a "steady recovery" in economic activity, and that this could lead to an upturn in the hotel sector. "This investment is consistent with our strategy to invest in sectors and infrastructure that assist in the continued growth and development of India," Chatterjee said in a statement.

While the investment makes sense in terms of India's appeal, the fact that Goldman is investing in hotels comes as a bit of a surprise as the bank has spent the last year selling assets. In February, ARC Hospitality acquired the 116-hotel-strong Equity Inns Lodging Portfolio from Whitehall Real Estate Funds (sponsored by Goldman) for $1.8 billion, and Moody National REIT announced plans to buy 149 limited-service hotels from the bank’s Whitehall Street real estate unit for $1.73 billion. 

By the summer, the company (along with hedge fund groups GoldenTree Asset Management and Avenue Capital), had tapped Deutsche Bank to advise them on the sale of UK budget hotel chain Travelodge

But in July, the plan to sell the 149-hotel portfolio to Moody National fell through, reportedly due to an increase in funding costs. And by October, Goldman Sachs was buying again. A joint venture between Goldman and Highgate Hotels announced plans to purchase a portfolio of 10 European hotels from the Austria-based Koller family for an undisclosed amount. 

Goldman is keeping mum about plans to expand its hospitality sector, but the turnaround may indicate renewed faith in the value of hotel ownership. Time, of course, will tell.