A buoyant real estate market last year saw several realty firms foray into the hospitality sector. But with slowdown hitting real estate and choking cashflow, several small realty firms have been forced to put at least half a dozen hotel projects on the block.

A developer has put on the block a 200-room hotel project in Ahmedabad that has a management tie-up with a reputed international hotel brand. Work on the project is around 60% complete. Similarly, two mid-size hotel projects in Bangalore, which are in the early stages of construction, and one each in Pune, Chandigarh and NCR have been put on the block. Almost all the projects are mid-size. Some developers are looking at completely exiting the hotel projects while others are looking at stake sale.

Cushman And Wakefield director (hospitality) Akshay Kulkarni said, “The developers are looking for equity dilution and are now willing to settle for lower valuation in their hotel projects”.

Till six months back when the going was good, several realty developers, who had parcels of land at strategic locations, were trying to get into the glamorous hotel business. With hotel room shortage taking room revenue to new levels, the hospitality business looked very attractive. And with foreign hotel chains looking to aggressively expand in India, even small developers could easily tie up with them for a management contract.

“The initial excitement is over. The hotel room rates are sliding. Moreover, the hotel projects are capital-intensive and payback period is very long, compared to other assets such as housing or commercial,” says Knight Frank India chairman Pranay Vakeel. Most of the properties put up for sale belong to small developers, who don’t have the holding power. They are now approaching bigger developers for a buyout.

In several cases, where actual construction work has not begun, developers have deferred the projects. Marriott area vice-president Rajeev Menon said, “Developers are now looking at a longer timeframe for their new projects”. Marriott has six operational properties in India and plans to add 15 by the end of 2009. The company only has management tie-ups with local hotel owners and developers.