Double Digit Multiples and Greenfield Risks: The new playbook for Indian hotel investors

Bureaucratic Friction and the Greenfield Valuation Gap

Licensing Limbo

Institutional capital has historically bypassed Indian greenfield hospitality development due to profound structural and regulatory friction that fundamentally misaligns with the required duration of capital deployment.

Because private equity vehicles operate on rigid five to seven-year exit horizons, their financial models actively conflict with the realities of Indian hotel construction, which typically demands an extensive gestation period of three to five years just to complete the physical build.

This timeline risk is critically compounded by formidable regulatory hurdles, requiring developers to secure a staggering array of operational approvals across varying state jurisdictions before a property can realistically open to the public.

While markets like Gujarat mandate a relatively streamlined minimum of 30 to 35 licences, states such as Karnataka require approximately 110 initial licences alongside the ongoing maintenance of 60 active permits throughout the asset's lifecycle.

The bureaucratic friction reaches its apex in Tamil Nadu, where operators face an even higher barrier of 160 distinct licences, fragmenting approvals into separate and highly specific authorisations for elements such as laundry facilities, banquet halls, and gymnasiums.

Greenfield Capital Challenges

These formidable development timelines leave institutional funds unable to achieve the rapid turnarounds and stabilised cash flows inherently required by their traditional investment models.

Consequently, capital allocation heavily favours distressed assets or completed operational properties, as these functioning hotels provide immediate transparency, established performance histories, and clear EBITDA multiples without the severe lack of visibility associated with greenfield land sanctions and construction roadblocks.

Broader valuation metrics continue to reflect the inherent risks of the domestic market, with capitalisation rates in established European and United Kingdom markets sitting tightly at 3-3.5%, whereas the broader Indian landscape historically forces these rates closer to 8%. 

The extensive time and effort required for greenfield projects is rendered even more financially unpalatable for global institutions by abbreviated amortisation periods of 10 years, contrasting sharply with the standard 25 years seen internationally.

Risk Mitigation Ecosystems

Mixed-Use Mitigation Strategies

To actively bypass the volatility and extended gestation of standalone hotel projects, sophisticated developers are strategically anchoring their hospitality assets within expansive mixed-use precincts that effectively internalise demand generation.

By integrating hotels directly alongside commercial office space, premium residential apartments, retail infrastructure, and healthcare facilities, the captive commercial ecosystem can organically sustain the hospitality component from its inception.

In pioneering integrated developments such as the Brigade Gateway - which features a 40-acre campus housing a mall, hospital, school, 1,250 residential apartments, and a World Trade Centre - captive commercial spaces consistently generate up to 30% of the hotel's total room and food & beverage revenues.

This architectural and financial model radically insulates the asset from broader cyclical downturns while dramatically enhancing the overall valuation of the precinct, securing highly predictable, bankable cash flows that robustly validate the initial greenfield risk.

The current absence of dedicated hospitality funds represents a temporary market phase rather than a permanent structural deficit, with the true private equity fund cycle precisely on the horizon.

Supply Shock

Over the next five years, an impending and exponential influx of new room inventory driven by the aggressive expansion pipelines of major operators will inevitably precipitate a massive supply shock across various micro-markets.

This impending oversupply threatens to severely compress operating margins for heavily leveraged and poorly financed assets, forcing them onto the market at distressed valuations and creating the exact entry point that close-ended funds require to launch successful investment cycles.

Simultaneously, the sector is experiencing a valuation renaissance, with robust properties generating year-on-year operating profitability between 40-50%, driving historical EBITDA multiples of 10 to 12 upwards of 24 to 25 following successful public listings.

Furthermore, primary urban markets such as Delhi, Mumbai, and Bangalore are already witnessing capitalisation rates compress into the 4-6% range, closely mirroring mature global financial centres like New York City. 

Institutional investors are consequently positioning themselves to capitalise on these adjusting cap rates by acquiring distressed assets, systematically bypassing the regulatory friction of greenfield construction to generate outsized returns.

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Thank you to everyone who participated in the GRI Hospitality & Branded Residences 2026 forum.