Noesis Capital Advisors and Ngage Hospitality hosted its virtual Masterclass on September 18th, 2020 on the topic – “Hotels & Resorts on Strata Title Sale & Lease Back Model - An Alternative Avenue for Project Funding” in association with FICCI.
The masterclass was specifically designed for the hospitality sector– Hotels & Resorts Owner, Hotel Developers, Hotel Operators, Asset Management Companies, Hotel Investors, Financial Institutions, Lawyers, Architects and Industry Entrepreneurs. The session began with the welcome note from Mr. Souvagya Mohapatra - Chairman, Eastern Region Tourism Council, FICCI & ED - Mayfair Hotels.
The highly specialized workshop was delivered by experienced hospitality industry experts like Mr. Nikhil Sharma (Area Director Eurasia Region - Wyndham Hotels & Resorts), Mr. Rocky Israni (Managing Director - Pacifica Companies, India), Mr. Santhosh Kutty (COO, Mahindra Holidays & Resorts), Mr. Suhail Kannampilly (CEO, The Fern Hotels & Resorts), Mr. Tanvir Shah (Founding Partner, Blue Triangle Capital) and Mr. Ashish Pyasi (Associate Partner - Dhir & Dhir Associates) and Mr. Nandivardhan Jain, (CEO - Noesis Capital Advisors).
“The Masterclass presented a structured new business model which we call the Hybrid model. Though the concept is not new in the industry it has been highly ineffective in India. The idea behind the new business model is to make the hospitality sector self-sustainable and less dependent on external funding. Our industry experts who have restarted the concept in India by replicating their experiences from the developed nations showed a very positive outlook on the business model and are looking to expand in the hospitality segment with the current model for their upcoming expansions.
On the occasion, our experts mentioned:
“The business model offers a variable lease to all the retail investors depending on the performance of the hotel/resort during that month,” says Mr. Tanvir Shah.
“There should be complete transparency between every single entry in the financial books so that the retail investors know what they are earning every month,” says Mr. Nandivardhan Jain.
“RevPAR per sqft. is the new terminology we use to ensure every owner gets revenue depending on the area he/she has leased out” says Mr. Rocky Israni.
“We are exploring new hotels under our Ramada Residences brand after the successful implementation of Hawthorn Suites at Dwarka,” says Mr. Nikhil Sharma
“We will prefer leisure destinations for the expansions under the strata sales and leaseback business model,” says Mr. Suhail Kannampilly
“For the business model to successfully work, the retail investors should understand the model in detail first,” says, Mr. Santhosh Kutty.
“The ownership and usership details and the lease agreement should be a part of the sales agreement for the retail investors” says Mr. Ashish Pyasi.
With all said and done, all the experts agreed on one common point that makes the business model successful, the developer must keep a minority stake within the project, unlike the previous projects which were executed under the same business model but the developer sold the entire inventory and lost economic interest. The loss of interest in the project previously led to the unsuccessful implementation of the business model. However, learning from past mistakes, this time, the developers should cautiously proceed to make this hybrid business model successful. If successfully implemented, the business model itself can act as a fundraiser opportunity for the developers and dependence on financial institutions can significantly reduce.
The second half of the event was focused on details of the model for the developers and retail investors. It covered the entire business model for retail investors to understand how the dynamics work in the sales-leaseback business model for retail investors. It also covered in detail the key legal points that the retail investor should look at before agreeing.
For the developers, during the discussion to make the model successful, it is of utmost importance for them to follow the 8 step process starting from the feasibility study, operator search, appointing hospitality-focused consultants, cost assessment, RERA registration, appointing the sales team, and investor relationship officer, allowing the middle-income group of India to own a second home, and appointing an AMC.
With detailed research and proper implementation with attention to detail, the model is expected to flourish in the coming times and open up an additional avenue for real estate developers as well as retail investors with the highest yields possible across all asset classes of real estate.
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