The din of hammering and drilling create a noisy backdrop for the working lunch as we sit around a table in what will soon be one of the high-end restaurants of a leading hotel chain. The noise underlines the urgency and deadline Hyatt has set itself as it warms up to open its property in Chennai, in May, the peak of summer.

The launch of the Hyatt Regency on the arterial Anna Salai is important to the international hotel chain, for which it is the first property in South India, and of interest to those following the city's history.

The prime property, known as the Abbotsbury when decades back it was a wedding hall that only the rich and famous could afford, became the subject of protracted litigation.

A half-finished building, the mark of a previous stalled hotel project, stood there for more than a decade catching the eye of commuters.

With the inauguration of the 300-room hotel with four restaurants and meeting hall around the corner, the gleaming glass façade will be a new addition to the fast changing city's skyline.

“Nice change perhaps, to have an open and operating hotel in this location,” says Mr Steve Haggerty, Global Head, Real Estate Development, Hyatt Hotels Corporation.

It is owned by Robust Hotels, a part of the Saraf Group, a special purpose vehicle of Asian Hotels East, which operates a couple of other Hyatt properties including the Hyatt Regency in Kathmandu.

Busiest hotel operator

The Hyatt in Chennai will be the hotel chain's seventh in India and one of the 38 properties under development.

This makes the US-based hotel operator the busiest in the country with all of these units expected to be up and running in three-five years. “We have a strict definition of projects under development,” he clarifies.

That means there are signed contracts in place with developers, projects are financed, and are going to open over a normal construction cycle of three to five years. The number of projects distributed across metros and small towns and cities represent a huge value in terms of investment and employment generated.

He is reluctant to put a figure to the size of investments they represent as it is made by third party property owners, and not just the hotel chain. Typically, depending on the brand, an investment of about $150,000 a key for mid sector to about $300,000-400,000 and for luxury brands even more. This does not take into account the cost of land which has usually been with the owners for long.

Land cost, a barrier

Land cost is one of the few barriers to the hospitality sector, says Mr Haggerty.

“I would not hazard a guess as to what an average might be but the capital formation in the business is vast. Our brand can attract that capital as we can maximise profit in the business model better than the next guy,” he says.

Chennai is among the top markets in India.

Industry estimates say that in the next couple of years over 2,500 hotel rooms are expected to hit the market with a dozen projects by leading brands including Leela, ITC, Marriott, another project by Hyatt, and others. This could depress rates initially, but the growing market will absorb it in its stride.

Mr Haggerty says Hyatt has for now more projects under development in India than even in China. Though, of course, it has more properties in operation in China, about 18. Also, Hyatt is yet to introduce the Hyatt Place, a limited service hotel brand in China.

India and China together are right on top as markets; it is therefore important for Hyatt to be in these markets to develop a pool of loyal clientele.

The spending on infrastructure and hotels is more aggressive in China, says Mr Haggerty. So the supply side has impacted rate spreads. State-owned enterprises can absorb the pain; they have a 50-year view of the market.

In India the infrastructure capital is more market-derived and so operators can layer products with better rate derivations. Brand awareness and segmentation is more in India.

The other market is of course the West Asia, but that is in a class of its own.

It is a place where development is not necessarily market-derived. It is by sovereign States with trillions of dollars, they are into nation building. They do not underwrite projects, they underwrite cities, he said.

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