With competition growing among international hotel brands to establish their presence in India, hotel chains are increasingly facing demands from hotel developers and property owners to offer ‘incentives'. These include pre-opening money, soft loans or management fee waivers in management contract deals.
Most international hotel chains follow the asset light strategy and strike management contract deals to operate a hotel rather than build hotels. The practice of paying key money or pre-opening money is getting more prevalent especially among the new brands where they pay a certain amount to a hotel developer while inking the management contract as per a report in Businessline by Meenakshi Verma Ambwani.
The amount paid as pre-opening money is usually 2-5 per cent of the construction cost. A leading international hotel chain for instance paid as much as $4 million to a real estate developer for a multiple hotel deal, say market sources.
Mr Siddharth Thaker, Managing Partner at Prognosis Global Consulting, said key money is usually paid by top end hotel brands for marquee locations.
Such incentives are also doled out by established hotel chains when they introduce a new brand.
Mr Nikhil Manchcharam, Vice-President acquisitions and development Starwood Hotels, said, “Hotel developers in India off late expect pre-opening funds from hotels chains for management contracts.”
Another senior executive of a hotel chain said that no hotel chain favours paying up key money as it would need to then pay up every time it signs a management contract with a developer.
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