Private equity firm Warburg Pincus is setting up a joint venture with Lemon Tree Hotels Ltd that plans to invest as much as Rs 3,000 crore ($426 million) to develop full-service accommodation for students and young working professionals.
Warburg Pincus will hold a 68% stake in the joint venture while Lemon Tree will own 30%, the hospitality company said in a stock-exchange filing. The remaining 2% will be held by Lemon Tree chairman Patanjali Keswani.
The JV partners will initially invest Rs 1,500 crore in equity over a period of time and an additional equal infusion at the option of the partners to develop rental housing projects, it said.
The joint venture company, Hamstede Living Pvt. Ltd, will construct, acquire, develop, operate and lease short- and long-stay real estate projects. Its primary focus is on student housing and co-living for working professionals.
Warburg Pincus is forming the joint venture through its affiliate Magnolia Grove Investment Ltd.
“Driven by the lack of quality accommodation and high rental or capital costs across key Indian cities relative to salary levels, the rise of co-living spaces is a part of the evolution of the sharing economy that will continue to gain significant traction,” said Keswani, founder, chairman and managing director of Lemon Tree Hotels.
Anish Saraf, a managing director at Warburg Pincus, said lndia has a large addressable rental population across students and young professionals which is likely to grow significantly as a result of rapid urbanisation, increasingly unaffordable housing prices or rentals and a shortage of on-campus housing infrastructure.
The deal expands the PE firm's relationship with Lemon Tree. As on 30 September, Warburg Pincus held a 12.42% stake in Lemon Tree.
New York-based Warburg Pincus is focused on growth investing. It has more than $47 billion assets under management across the globe.
In the real estate sector, Warburg Pincus has a joint venture with Bengaluru developer Embassy Group to develop industrial and warehousing spaces. It also invested in Piramal Realty, part of Piramal Group.
Warburg Pincus had earlier invested in institutional apartment rental sector in China and Hong Kong which includes Mofang Apartment, Nova and Ziroom.
Lemon Tree is a mid-priced hotel chain. It owns and operates about 5,300 rooms in 52 hotels across 31 cities in India.
Lemon Tree made its stock market debut in April. Warburg Pincus sold about 12% stake during the IPO.
Deals in the space
Companies offering student accommodation services have attracted investor interest over the past couple of years.
In September, Delhi-based student accommodation platform Stanza Living raised Rs 73 crore ($10 million) in a fresh round led by venture capital firm Sequoia Capital.
In August, Housing Development Finance Corporation agreed to pick up a 25% stake in Good Host Spaces Pvt. Ltd, which offers student housing facilities under the brand name NewDoor (previously Yoho), for Rs 69.5 crore (a little less than $10 million).
In February, Noida-based Placio, which operates an eponymous student housing solutions platform, secured $2 million in a pre-Series A round from Singapore-based private equity fund Prestellar Ventures.
