Sunday 28 August 2011

How Hotel Biz is taken over by Private Equity?

Capital has become the most important commodity and the scarcest one. No business man wants to keep his capital fixed.
If REIT (real estate investment trusts) are given approval hotel biz will be taken over by fixed income mutual funds.REIT’s in residential and commercial will be difficult because the rental yields are 2-3% and 10-12% resp.
PE-pool of small investment money put together for a common goal.
From the buying of land to building it is done by private equity and then it is leased to a brand name which will give a fixed %age of return (Local brands can use this opportunity for building their name and using it to get listed on the exchange)
If the expected rate of return on a fixed deposit is 12%,2% is added as expense cost and 1% overhead expenses( + 3 years of building a hotel) minimum return( can go as high as 18-21%) is expected to cover these out of the lease.
The land/Property remains with the investors while getting a fixed rate of return. The maintenance expenses are borne by the brand to which it is leased.