Hotels and the high cost of real estate

That the trite adage about grass being greener on the other side is still relevant can be seen in BusinessWeek Online‘s article which features a face-off between Real Estate moghul Sam Zell and Hotel legend Barry Sternlicht on the high price of real estate in the US. While Mr. Zell is of the opinion that there are plenty of markets still available in the US for development, Mr. Sternlicht has the opposite view. Who is right will only be known in the not too distant future as markets either stay steady, rise or collapse. But what is surprising is the degree of confidence both exhibited in overseas markets.

The former Starwood boss showed the greatest confidence in the Indian real estate market. While there has been a rush to seek the Taj Mahal by many a real estate fund, it is far from clear that the opaque real estate market in India can offer projected returns. With no title insurance, murky deed records and hard to find owners, it is not for the faint hearted. Most hotels that are coming on-stream take the long view with few expecting profits before the 5th year of operation. Curiously, Mr. Sternlicht expressed astonishment at a 5% cap rate in an ongoing hotel in Aruba, implicitly discounting any future appreciation, but seemed sanguine about the current frothy environment in India.

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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.