Big brands snap up stressed real es­tate projects

Business Standard - - FRONT PAGE - PA­VAN LALL

In stressed realty mar­kets such as the Na­tional Cap­i­tal Re­gion and Mum­bai, big play­ers are go­ing for out­right land ac­qui­si­tion, joint ven­tures, and joint devel­op­ment agree­ments, as liq­uid­ity from non-bank­ing fi­nance com­pa­nies for the sec­tor dries up. The en­vi­ron­ment for con­sol­i­da­tion is op­ti­mum as the sec­tor was al­ready reel­ing from the ef­fects of de­mon­eti­sa­tion and im­ple­men­ta­tion of the goods and ser­vices tax (GST) as well as the Real Es­tate (Reg­u­la­tion and Devel­op­ment) Act, 2016 (RERA).

Lead­ing the wave of con­sol­i­da­tion are a list of the projects Go­drej Prop­er­ties has en­tered into in re­cent months: 1. A 1.7-mil­lion sqft hous­ing project in part­ner­ship with Ace Group; 2. A 2.2-mil­lion sqft project in Noida Sec­tor 43 with Shipra Group; 3. A 700,000 sqft res­i­den­tial project on Ghod­bun­der Road in Thane through an out­right land pur­chase from un­named sellers; 4. A 100-acre land par­cel for devel­op­ment near De­vana­halli in north Ben­galuru as a JV with Sai Srushti Group.

Re­cently, Sun­teck Realty also launched Sun­teck West­world, a 100-acre project with apart­ments priced be­tween ~2.5 mil­lion and ~5 mil­lion. It had ac­quired a project in Naigaon from Uni­corn De­vel­op­ers in a deal that in­cluded a rev­enue-shar­ing agree­ment of 25 per cent of the top line, Sun­teck's of­fi­cials said. Shapoorji Pal­lonji has also tied up with Nir­mal Life­style.

Th­ese ac­qui­si­tions and JVs are not only in the res­i­den­tial seg­ment, but also in the com­mer­cial, re­tail, and co-work­ing spa­ces. And, pure de­vel­op­ers are not the only ones look­ing out for op­por­tu­ni­ties.

Ac­cord­ing to Anarock's re­search, a num­ber of pri­vate eq­uity deals have also been struck.

For in­stance, Xander Group's re­tail arm, Vir­tu­ous Re­tail South Asia, is close to ac­quir­ing a re­tail project in Mum­bai from Omkar Re­al­tors & De­vel­op­ers at an es­ti­mated cost of $280-$325 mil­lion; Black­stone ac­quired In­di­a­b­ulls' Chen­nai com­mer­cial prop­erty for $123 mil­lion; and Ja­panese con­glom­er­ate Mit­subishi in­vested $25 mil­lion in Ben­galuru-based Shri­ram Prop­er­ties for an on­go­ing res­i­den­tial project.

An­a­lysts track­ing the in­dus­try claim Ben­galu­rubased de­vel­oper Pres­tige Prop­er­ties is also in talks with realty firm Nir­mal Life­style for tie-ups. Ir­fan Razack, chair­man and man­ag­ing di­rec­tor at Pres­tige Group, said while talks were in­deed on with Nir­mal Life­style, the deal had not been for­malised.

Ramesh Nair, chief ex­ec­u­tive of­fi­cer of prop­erty man­age­ment con­sul­tancy Jones Lang LaSalle, said there was a rea­son why only a few com­pa­nies are lead­ing the race. "Most of the large real es­tate com­pa­nies have ac­tu­ally fo­cused on get­ting their own houses in or­der and haven't been able to take ad­van­tage of the op­por­tu­ni­ties in the mar­ket," he said.

His peers agree. Un­scrupu­lous de­vel­op­ers will ei­ther per­ish or merge with the big names, said Anuj Puri, chair­man Anarock Con­sul­tants.

He claimed lend­ing to the sec­tor had re­duced from 68 per cent in 2013 to 17 per cent in 2016, and other sources of fund­ing such as pri­vate eq­uity (PE), fi­nan­cial in­sti­tu­tions, and pen­sion funds have gained more promi­nence.

"How­ever, PE play­ers are be­ing ex­ceed­ingly cau­tious and are in­vest­ing only in squeaky clean projects. Play­ers whose projects do not qual­ify are there­fore hit hard­est by the liq­uid­ity cri­sis," said Puri.

Sahil Vora, CEO of real es­tate man­age­ment com­pany Sila, said play­ers such as Sun­teck have man­aged their risk pro­file smartly by scout­ing for deals, rais­ing money when the mar­ket was hot and keep­ing their pow­der dry for the right buy. "But, over­all con­sol­i­da­tions should have been mov­ing at 10 times the pace. That hasn't been the case be­cause the realty NBFCs kicked the can down the road."

So what are realty firms look­ing for when they take on stressed as­sets?

Ka­mal Khetan, Sun­teck Realty's chief ex­ec­u­tive and man­ag­ing di­rec­tor, said he looks at un­tapped po­ten­tial in ad­di­tion to the ob­vi­ous fac­tors such as high growth lo­ca­tion, easy con­nec­tiv­ity and clean ti­tles.

As far as the fi­nan­cial side is con­cerned, Sun­teck eval­u­ates deals with a min­i­mum po­ten­tial value of about ~10 bil­lion when com­plete. "There will be at least a few hun­dred projects that will come up for re­struc­tur­ing in the next few months across met­ros such as Delhi and Mum­bai," he added.

As for its pros, the over­all hope is con­sol­i­da­tion will even­tu­ally ben­e­fit con­sumers. "They will get bet­ter prod­ucts with­out ex­ces­sive de­lays, and there will be less risk on their in­vest­ments," Puri said. The rules of the game will also see some changes. Vora said any player want­ing to see sta­ble busi­ness will need the bal­ance sheets, the cus­tomer con­fi­dence, and the over­ar­ch­ing brand her­itage. We may soon see a re­vamped peck­ing or­der.

"We are likely to see a new set of dom­i­nant real es­tate play­ers emerge af­ter the wave of con­sol­i­da­tion that will con­tinue for at least a cou­ple of years," Khetan said.

Source: JLL, Com­pa­nies

An­a­lysts track­ing the in­dus­try claim Ben­galu­rubased de­vel­oper Pres­tige Prop­er­ties is also in talks with realty firm Nir­mal Life­style for tie-ups

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