Mountgrange makes £100m London budget hotel investment

Mountgrange Investment Management, which raised its debut opportunity fund in 2009, is backing a venture to develop 15 London budget hotels under a franchise agreement with Tune Hotels run by Asia entrepreneur Tony Fernandes.

Mountgrange Investment Management, the London-based private equity real estate firm that raised £300 million (€342; $475 million) last year for its debut opportunity fund, is investing in a new hotel venture called Raag Hotels.

The firm is providing an undisclosed amount to build up a chain of budget hotels under a franchise agreement with Tune Hotels, which was started by Malaysian entrepreneur Tony Fernandes in 2007 and operates 11 sites in Asia. Fernandes is the founder of low cost airline, AirAsia, who rose to prominence in the UK earlier this year when he expressed an interest in buying Premier League football club, West Ham United.

The new venture Raag Hotels is also backed by Naguib Kheraj, the former chief executive of JPMorgan Cazenove who was recently hired by Lazard Bank to spearhead the investment bank’s international operations.

Its strategy will be to develop a chain of 15 budget hotels with 1,500 beds to be developed in London by 2017.

The first site opened in Westminster, London, in August and has been running at near 100 percent occupancy, according to a statement. Room rates for early bookers are typically £35 per night.

A second hotel will open in Broadgate near Liverpool Street in London’s financial centre with further sites in London to be secured from mainly secondary commercial property space.

Raag Hotels is operating with an initial equity outlay of £38 million, but the business plan entails investing closer to £100 million over the next five-to-seven years.

Queensway Hotels, which is run by the private Jivraj family, is the operating partner of the chain.

The concept is based on providing economic room prices for customers that book in well in advance, a model running along similar lines to low-cost airlines.

It is the second investment announced by Mountgrange in two months following a deal in October to invest close to £17 million in the development of a waste-to-energy plant near Peterborough, Cambridgeshire, where a large-scale waste-to-biomass power generation plant will be built.

Mountgrage burst onto the private equity real estate scene last June when it raised the Mountgrange Real Estate Opportunity Fund.

The fund attracted more than 30 investors from around the world including the US, Canada, UK, Continental Europe, the Middle East and Australia, with capital coming from endowment and pension funds, sovereign wealth funds, fund of funds, high net worth individuals and family offices.

Upon the fundraise, the firm said it expected the fund to take advantage of current depressed valuations in order to make opportunistic investments across a number of market segments and the creation of new platform businesses.

Manish Chande, a senior partner, said at the time of fund closing: “We believe there are opportunities in the UK which can provide substantial returns for our investors. Our task now is to bring these identified opportunities to fruition and maximise their underlying potential.”

Martin Myers is the other senior partner at Mountgrange. The team includes partners Nick Berry, Sally Doyle-Linden, Rob West, and Rob Mills, who was previously at JER Partners.