US private equity giant Warburg Pincus is extending its bets on Asia’s rental residential sector by partnering with India’s largest mid-priced hotel chain, Lemon Tree Hotels, in an INR 30 billion ($430 million) joint equity investment to create a new co-living platform.
The pan-India platform aims to develop rental housing projects through a combination of developing new greenfield projects and refurbishing under-managed or stressed existing commercial and residential assets, as well as management of existing for-rent accommodation projects, according to a statement jointly released by the two partners.
Warburg Pincus’ Mumbai-based managing director, Anish Saraf, whose company first invested in Lemon Tree 12 years ago, said the venture was created to address Indian millennials’ desire for modern housing facilities that come with a sense of community living — characteristics the partners see lacking in India’s existing housing stock.
Co-Living Catches on in India
Echoing Saraf’s comment, Patanjali Keswani, founder of the 15-year-old Lemon Tree chain, also noted in the statement that “driven by the lack of quality accommodation and high rental/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.”
A leader in the mid-priced sector, Lemon Tree currently owns and operates about 5,300 rooms in 52 hotels across 31 Indian cities. Its new venture with Warburg marks the hotel operator’s expansion beyond hospitality sector into development of institutional-grade rental housing accommodation.
The venture — 68 percent held by Warburg, 30 percent by Lemon Tree, and 2 percent by Keswani — aims to serve both students and young working professionals across major educational clusters and key office markets in India with affordable and conveniently located co-living spaces, the statement said.
“India has a large addressable rental population across students and young professionals, which is expected to grow significantly as a result of rapid urbanization, increasingly unaffordable housing prices/rentals and shortage of on-campus housing infrastructure,” explained Saraf.
The venture’s projects will also include shared spaces like living rooms, gyms and cafeterias to provide residents with a full-service co-living accommodation.
The INR 30 billion investment will initially see the partners commit INR 15 billion in equity over a period of time, followed by an additional infusion of INR 15 billiion in equity at the option of the partners.
The announcement of the partnership comes less than two months after Warburg made its first foray into rental housing in Asia outside of mainland China. Warburg announced in November that it was investing up to $413.5 million in Weave, a co-living provider established in 2016 by former APG real estate head Sachin Doshi, to grow its portfolio to over 10,000 bedrooms across major Asian cities over the next five years.
Last January, Warburg joined with Tencent and venture capital heavyweight Sequoia China to lead an RMB4 billion investment into Ziroom, one of the biggest rental apartment brands in China.
The bet on Ziroom came after a Warburg affiliate committed a fresh $183 million in September 2017 to Nova Property Investment, a rental residence platform it co-founded three years ago.
Competition in India
The Warburg-Lemon Tree tie-up will compete with a few already announced co-living partnerships in India. Gurugram-based OYO in October announced the launch of OYO Living, funded by Japan’s Softbank, while co-living firms Zolo, NestAway and CoHo have already entered India with backing from investors including Goldman Sachs and Sequoia Capital. Just this week local news reports in India indicated that WeWork is now in talks with its Indian partner, Embassy Group, to bring its WeLive co-living brand to the country in 2019.