The Leela Group, which on Wednesday paid a record Rs 611 crore for a hotel plot in Chanakyapuri, stands a good chance of breaking even on its huge investment in 7-10 years, given the prime location and the acute shortage of hotel rooms in Delhi, feel real estate insiders.

Said Anshuman Magazine, head of C B Richard Ellis, south Asia: “Whether you have underpaid or overpaid for a piece of land depends on what you make out of it.” He said the project’s financial viability would depend on three factors:

• The floor-space index allowed, meaning the number of rooms the group will be able to construct

• The average room rate, and

• The average occupancy of the hotel.

Jayant Varma, an executive director at Knight Frank, did some back-of the-envelope calculation. On a three-acre plot with a 30 per cent footprint and a floor area ratio of 1.5, the group should be able to build 200-odd rooms. It takes Rs 2 crore to build a deluxe-category room, fit it out, and staff it. Together with the cost of land, each room in this case will cost about Rs 4.77 crore.

“If the hotel can command a room rate of Rs 10,000 and an occupancy rate of 85 per cent, it will break even in 10 years. And this period is the norm for the hospitality industry,” Varma said.

The key question is: Will the hotel be able to command a tag of Rs 10,000 and an occupancy rate of 85 per cent? Going by the situation in the capital today, it will.

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