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Discount Hotel Startup OYO Targets U.S. For $300M Expansion Blitz

An Oyo hotel in Shenzhen, China, as of November 2018

For those who follow commercial real estate, the following might sound eerily familiar: A startup backed by a SoftBank war chest is trying to expand at a breakneck pace.

In this case, the company backed by Masayoshi Son's investment firm is not WeWork, but OYO Hotels, a company founded in India in 2013 by Ritesh Agarwal when he was 19 years old. Now, it already operates the sixth-most hotel rooms of any company in the world, and it has its sights set on the U.S., National Real Estate Investor reports.

OYO has earmarked $300M to fund its American expansion, which began earlier this year and is now adding one hotel per day to OYO's portfolio, NREI reports. By the end of the year, it aims to be adding five per day. It may sound outlandish, but it only took one year for OYO to become the second-largest hotel operator in China, Business Standard reports.

The SoftBank Vision Fund, the same arm that has poured billions into The We Company to fund a rapid (and costly) coworking expansion, led a $1B funding round in OYO last year, Reuters reports. The campaign, in which Sequoia Capital and Lightspeed Ventures also participated, valued OYO at $5B.

A major portion of OYO's success lies in its ability to severely undercut the pricing in any market it enters, charging about as much as a Days Inn while offering a more sophisticated aesthetic, Agarwal told NREI. It does so by purchasing underperforming hotels and renovating them in less than a month.

OYO has managed to win over landlords by covering the cost of its renovations up front and guaranteeing a baseline of profits, both of which are rare in discount hotel contracts, according to NREI. OYO also operates on five-year contracts, rather than longer-term deals that are more standard across the industry.

The brand already has over 50 locations up and running in the U.S. across markets such as Atlanta, Miami, Dallas and Houston. In one Houston hotel, OYO managed to boost occupancy from 22% to 90% in a single month of management, while growing its revenue per available room from $17 to $43, Agarwal said.

Son spoke glowingly of OYO at a Tokyo shareholders meeting in May, where he told investors of the brand's status in China and predicted that it would become the largest hotel operator in the world before long, Business Standard reports.