Last year, when the Royal Bank of Scotland put 42 Marriott hotels in the U.K. up for sale, several buyers lined up. In the fray with moneyed giants like private equity player Blackstone and sovereign wealth fund Abu Dhabi Investment Authority was the Kumars’ RB Capital. The firm’s $1 billion offer secured it a spot among the top three bidders—and lots of press coverage at home.
While initially Blue Coast Hotels, owned by India’s Suri family, was named as the preferred buyer for its higher $1.2 billion offer, that bid seems to have gone nowhere. So RB Capital remains in the running nine months on.
Hospitality is a new business for the firm, which has four hotels in the pipeline with a cumulative 1,300 rooms. Snatching the 8,000-room Marriott portfolio would be “a big leap,” acknowledges Kishin, the 29-year-old chief executive of RB Capital. It would catapult the six-year-old outfit into the league of one of Singapore’s largest hotel owners, with a substantial Western presence.
Bankers are willing to back RB Capital because neither the firm nor its young boss, who counts Facebook cofounder Eduardo Saverin among his close buddies, are rank newcomers. RB is the name derived from the erstwhile Royal Brothers, a 65-year-old property group with roots in textile trading. Raj Kumar, whose initials Kishin attached to his name, has been in the real estate business for over 30 years. Along with younger brother Asok Kumar Hiranandani, Raj—he’s given up his surname and goes by Kumar—built Royal Brothers to become the wealthiest non-Chinese family operation in Singapore real estate.
The two brothers, both Singapore citizens and known to friends as Roger (Raj) and Andy (Asok), were the kings of “strata retail” (shops in malls with multiple owners) for their ownership of literally hundreds of shops in some of the biggest malls, mostly along the Orchard Road strip. Last September, in what the local press loosely called an “amicable restructuring,” Raj and Asok divided up the holdings and went their separate ways. The regrouping, six years in the making, involved a complex swap of assets, mostly retail and office properties, worth an estimated $1.4 billion.
Asok’s share includes shops covering several floors in popular malls like Lucky Plaza and Peninsula Plaza. Among much else, Raj secured control of Cuppage Terrace, a row of 17 shop-houses occupying an entire street off Orchard Road that he plans to turn into a hotel. In a separate deal, Raj paid $75 million to acquire Asok’s share in the brothers’ most cherished parcel: the 16-story Royal Brothers Building at Raffles Place, in the heart of the financial district, which was their corporate headquarters. This is now being demolished and redeveloped into a 50-story office tower.
Ensconced temporarily in RB Capital’s office on the top floor of the EFG Bank building, opposite Singapore’s parliament, Raj spoke to FORBES ASIA on the family settlement. “This was a surgery that had to be done. Business families tend to run away from this subject, but you can’t expect your kids to clean up after you. Today we’ve created two new platforms for growth,” says the dapper 58-year-old.
The new entities carved out of the original Royal Brothers enterprise draw similarly on its name: Raj has Royal Holdings, while Asok calls his Royal Group Holdings. This year the brothers debut on the Singapore rich list after agreeing to share details of what has until now been a zealously guarded private fortune. Raj and Kishin, whose wealth includes assets of RB Capital, are ranked at No. 11 with a combined net worth of $1.5 billion. Asok is at No. 19 with $910 million.
Emboldened by their settlement, the brothers are pursuing expansion more vigorously. Asok’s son Bobby is overseeing the construction of a 135-room Hotel Sofitel So Singapore due to open in 2013. Last October they bought two adjacent buildings in the Raffles Place area for over $220 million, where they will build a new corporate headquarters.
Raj had taken the lead in backing Kishin to set up RB Capital once he and Asok had decided to part. Says Kishin: “Dad has been wealth-preservation focused. I’m more wealth-creation focused.”
The Marriott deal aside, their attention has been trained on land-scarce Singapore. In 2010 RB Capital won a prized hotel site at Clarke Quay for $80 million, bidding against heavyweights like the Ng family’s Far East Organization and the Kwek family’s City Developments. It is building a 445-room Holiday Inn Express, a midtier hotel aimed at budget-conscious travelers.
“The Kumars have demonstrated great business acumen and a very clear vision on how they intend to grow,” says Jan Smits, chief executive of InterContinental Hotels Group for Asia, Middle East & Africa, which owns the Holiday Inn brands. They are building a Holiday Inn Express in Kuala Lumpur as well.
In April RB Capital outbid big names like Far East, CapitaLand and Hong Kong’s Harilela Group to bag a site in Little India for $120 million. Amounting to $860 per square foot, the transaction set a record for the area and was 60% higher than Far East’s $72 million offer.
“People said we were crazy to pay what we did. But we felt that Little India is one of the strongest submarkets that has the potential to be rejuvenated as a tourist hot spot,” says Raj. It’s already popular with the Indian crowd that flocks there to shop at Mustafa Centre, the famous 24-hour department store whose owner, Mustaq Ahmad, has figured among Singapore’s richest in the past.
The Kumars figure the precinct also has potential for medical tourism. They plan to build a twin tower consisting of a 326-room hotel and a 46,000-square-foot medical center.
“The Kumars have a cautious approach and the ability to sniff out the best deals. They analyze opportunities well before making their move, and once they have decided on a particular investment they are completely focused and committed,” says Mark Wynne Smith, global chief executive of Jones Lang LaSalle Hotels, the consultancy appointed by RBS to handle the Marriott hotels sale.
Raj admits to being a “deal junkie” who operates by gut feel (he once tried to buy the Trump Tower in New York). “When you’ve done hundreds of deals you develop an instinct. That becomes your Midas touch,” he says. Kishin’s approach is more studied and numbers driven. While father and son continue to front all deals, Kishin insists the back of the house, staffed by executives recruited from top banks and private equity firms, runs professionally.
A high school dropout, Raj jokes about his lack of formal training. His trader father, Naraindas Hiranandani, migrated to Singapore in 1947 from the Sindh Province during the partition of India. His first venture was a small shophouse in Seletar Hills, situated near an erstwhile British military enclave. Later he opened the Royal Silk Store, a 2,000-square-foot outlet on Orchard Road. When diabetes-related complications led to his legs being amputated, Raj, who was then 13 and the eldest son among five siblings, left school and plunged into the family trade.
With Asok joining him soon thereafter, the brothers expanded Royal into a chain of garment stores that did a thriving trade, notably in jeans. But, recalls Raj, “we were on our feet for 18 hours a day at our stores. It was stressful.”
When rents went up the brothers decided to take loans to buy their own stores and pay mortgages instead. Soon enough they were buying shops that they leased out to other retailers. Figuring that there was more money in leasing stores than in running them, they shut down their garment shops.
They struggled to make inroads into a market dominated by a group of Chinese landlords. Bankers weren’t so much a problem, but sellers were another matter. The pair’s youth and ethnicity were handicaps. When they tried to buy their first mall, the owner sold to the second-highest bidder instead.
The brothers got their first break in 1985 when Emporium Holdings, a Chinese-owned department store chain, went into receivership. The brothers acquired a chunk of its assets that included stakes in several malls. Over the next decade the brothers continued buying until they could claim 10% to 30% in most strata malls across the island. “It was like a stamp collection. We built it up, one store at a time,” says Raj.
The 1990s were a turning point. The brothers bought the Promenade (now the Paragon), a mall on Orchard Road, in 1990 and sold it five years later, netting over $150 million. One of their best deals was for the Melia at Scotts Hotel (now the Scotts Highpark condo), which more than doubled in price within two years when sold to CapitaLand for $165 million.
Venturing overseas, they bought cheap and sold dear hotels and commercial properties in New Zealand and Australia. That helped to reduce the leverage they’d amassed back home. “Our father had taught us not to take on too much debt,” says Raj.
In 1996, just before the Asian crisis, they sold all their properties—save the strata retail stores—for $700 million. They rode out the downturn by sitting on their cash pile. “We saw companies dropping around us like flies. It was a terrible time. But we had long-term tenants and no debt,” Raj recalls.
But their frenzied dealmaking also landed them in serious trouble with the law. In one high-profile, property-linked case they faced a criminal charge and in 1999 were sentenced to a year in jail. In 2001, after they and the market had recouped, they were ready to deal. They snatched what was to become the Royal Brothers Building for $40 million from DBS Bank, securing the bank itself as an anchor tenant.
In 2003 Kishin’s entry into the family trade sparked a change. An only child who had studied at the elite Anglo-Chinese School, he began working at the family firm after completing the mandatory military service and securing an undergrad degree in business.
Kishin questioned the business model of buying and managing ready-made assets. “We had so much cash flow, I felt we could afford to take on debt and scale up. To be a real estate firm of some standing we had to get into development and construction.” Among his first RB Capital deals was the redevelopment of Satnam House, a decrepit 60-year-old structure that was rebuilt and named after its anchor tenant, Swiss private bank EFG. It’s there they work today.
In 2005 the brothers agreed to separate for smooth succession processes. Having noted the downfall of the Scotts Holdings empire of the Jumabhoy family, a pioneering Indian property group in Singapore that was triggered by a bitter public fight between siblings (see box on Jumabhoys), they were determined to avoid that fate. “We had created such a huge pot of wealth that the last thing we wanted was to end up bickering over bricks and mortar,” says Raj. Two sets of advisors joined the talks in 2010. (see more details on how they did it)
Raj says that while such partings can be painful, “Every family business is like an old piggy bank, and you have to figure out how to unlock it. If you look at history and legacy, you will remain where you are. But if you can keep your eye on the future, you can go through the ups and downs of negotiations.”
The Kumars have acquired the trappings of wealth, but Kishin, who took a bus to prep school, is loath to flaunt them. He prefers to drive a BMW rather than the yellow Ferrari gifted by Dad. Like in any traditional Indian family, father and son, who is still single, live together, sharing a 30,000-square-foot mansion on Meyer Road, an upmarket enclave of villas favored by wealthy Indians. (The rich Chinese have their own enclave at Nassim Road.)
The Kumars are now preparing to subject themselves to more public scrutiny. RB Capital has announced plans to list its hotel assets. Beyond the Marriott deal, the father-and-son team are looking at other hotel investments in Europe and a broad expansion into Southeast Asia. But they still remain squarely focused on Singapore: “It’s getting expensive, but there are deals to be made.”
Source: Forbes.com, 25 Jul 2012