Even as around 30 branded hotels and another 40 non-branded properties and land parcels are on the block in the hospitality industry, experts say it may turn out to be another year of wait and watch for big-ticket transactions unless the economy improves and the asking prices of most of these assets come down.

 

For most companies, the prime reason for selling property is to cut the debt burden. Leela Hotels, for instance, has been undergoing a corporate debt restructuring for its Rs 4,300 crore debt and has to finish the process by March 2014. Experts say the hotel chain would need to get some of its assets off the shelf as per a report in Business Standard.

 

Many transactions have been stuck due to high asking price by the owners, in times when returns in hospitality have not been rewarding, to say the least. “The seller wants to get back at least the price he invested. No transactions are likely to happen on profit since buyers are in a mood to bargain. There could be distress sales now,” said Ajay Bakaya, executive director, Sarovar Hotels group. 

 

Even if prices dropped, there are additional challenges like political uncertainties, falling rupee and policy paralysis. Buyers have been hit by a negative sentiment and are weighing their investment options between India and elsewhere.

 

Real estate company DLF has also been trying to reduce its debt burden by hiving off its non-core business including assets in hospitality sector. “Hotel is a long term business. The gestation period is long. Several real estate companies have burnt their fingers after having invested in boom time,” said K B Kachru, executive vice president, Carlson Hotels.

 

In times when the room supply has outpaced the demand and average room rates have remained stagnant, hotel chains have been struggling to stay afloat. However, for long term investors, this is a good time to buy assets.

 

This is also the time, when several private equity investors are staring at the end of their investment horizon in the hospitality sector. “There will be some forced exits. They (PE firms) will have to take a haircut in order to make these deals happen. If they have the luxury to hang in there, they will. But if that option is not there then they are between the rock and a hard place,” a senior hotel industry expert said.