Goldman forms $300m realty JV with Nitesh Estates

Wall-street leader Goldman Sachs is expected to invest $300 million (Rs 1,850 crore) in a proposed joint venture company promoted by listed property developer Nitesh Estates. The proposed JV will own and operate commercial real estate assets in India, people directly aware of the matter said.

As per reports, Goldman will hold 74% whereas Nitesh Estates will have 26% in the proposed entity which has plans to acquire rent-yielding office parks, shopping malls and luxury hotels, sources added. The impending deal is a proprietary investment from the Goldman Sachs balance sheet which has assets estimated at over $900 billion.

Meanwhile, with the proposed investment Goldman Sachs joins the list of marquee global investors like Blackstone, Brookfield Asset Management, Qatar Investment Authority and GIC of Singapore which have been buying into India's over 400-million-sqft commercial real estate market over the last few years.

Indian economy, dominated by service sector has opened a stable market for income-generating commercial real estate, giving investors a chance to list these assets through real estate investment trusts (REITs). These trusts are listed entities holding income-generating real estate assets from which earnings are distributed to shareholders.

SEBI recently came out with REIT guidelines last year to help real estate and infrastructure developers list their rent-yielding assets, and providing large and small stock market investors with an inflation-indexed product.

Goldman Sachs with the first-generation entrepreneurial company Nitesh Estates, will create a platform of assets worth almost $1 billion in the next few years. The still unnamed JV, on which a battery of top lawyers are completing due diligence, is expected to employ leverage financing of up to three times the equity commitment to go on a shopping spree.

The recent Union Budget provided some tax clarity on REITs even though certain structuring challenges still remain. Four Indian developers - Embassy Office Parks (Blackstone), K Raheja Corp, RMZ Offices (Qatar Investment Authority) and Prestige Group - are readying to list their assets, which could translate into at least a $20-billion REIT market in the next few years.

With such market potential, India would compete with or even surpass the Mexico's REIT market, often cited as a successful new world experiment, launched three years ago and with a current market value exceeding $18 billion. New York, London and Singapore have hogged the limelight in developed market.

Brookfield Asset Management, with real estate and infra assets worth over $200 billion globally, struck the single largest deal when it acquired the office parks of Unitech for $1 billion - $400 million in equity and $600 million in debt. Private equity giant Blackstone Group, too, struck office park acquisitions worth more than $1 billion in recent years in India.

Blackstone-supported Embassy Office Parks and Brookfield India, with 21 million sqft and 17 million sqft portfolios, are among the top five office landlords in the country. DLF tops the list with around 30 million sqft.

Though foreign investors have mostly invested in office buildings, that too specifically in 125-million-sqft IT SEZs until now, they are turning to the country's hotels and shopping malls which have remained undervalued or, in some cases, distressed assets for a while.

Realty major, BMRCL in tie-up to develop Malleshwaram station

Posted: 16 Mar 2010 11:30 PM PDT

Bangalore:

The Bangalore Metro Rail Corporation (BMRCL) has signed a first-of-its-kind joint venture with private realty firm Mantri Developers to develop a multi crore commercial hub-cum-metro station at Malleshwaram, north Bangalore.

“It will be the first station to be constructed on a public-private participation model with Mantri Developers,” persons with direct knowledge of the development said.

The Malleshwaram station had remained a contentious issue with the developer and the BMRCL locking horns over the land.

However, when contacted both BMRCL and Mantri developers confirmed the developments but refused to share further details.

Sources, however, said Mantri and BMRCL have entered into a revenue-sharing agreement for the proposed station. BMRCL will get 1% of the revenue earned annually for 30 years, and the percentage will go up to 5 after that from the proposed commercial hub-cum-Metro station.

The land will belong to BMRCL but Mantri will spend Rs 35 crore to develop the station, which will be operational by 2013, and then construct a commercial tower over the station.

According to the agreement, BMRCL will lease the space above the station for 99 years and after the 5-acre property is developed, it will be transferred to BMRCL. “This will be a part of Mantri’s mega plan of creating a commercial hub on 24 acres right in the heart of the city,” said the source.

He further said BMRCL had acquired 5 acres at almost no cost, out of 24 acres of prized mill property that Mantri Developers had bought through the auction and has developed into a bustling shopping destination.

In 2005, BMRCL had notified the land for acquisition and since then the Mantris could not develop the land after it was bought by the developer in a land auction from National Textile Corporation. “The company received clearance from the BMRCL three months back to develop the station,” added a source. Source: MagicBricks

Is Prestige Estates Doing A Rethink On Rs 1.2k Crore IPO?

March 17 2010, 09:20:58 IST | BOBY KURIAN

Promoter rebuts market rumours, says he's waiting for final SEBI clearance.

There are speculative talks that Bangalore-based real estate major Prestige Estates may be "re-thinking" on its proposed plan to raise up to Rs 1,200 crore through an initial public offer (IPO). Prestige had filed its draft red herring prospectus with Securities Exchange Board of India in November last year for the public issue for divesting up to 15%-20% stake.

Sources directly familiar with the development said, the promoter family was in the midst of a re-think, which might see it deferring the plan or even dropping it. The firm is yet to receive a     final clearance from the market regulator nearly four months after filing the prospectus. It has appointed Enam Securities, UBS, J.P. Morgan and Kotak Mahindra Capital as its book running lead managers for the issue.

An email sent to Prestige Group chairman Irfan Razack, seeking a confirmation on IPO deferment, did not elicit a response at the time of posting this article. However, Razack replied through a text message, saying, “just to set the record straight, we have not deferred our plans for IPO. We are just awaiting the final nod from SEBI and are fully geared up.”

The three co-promoters are Irfan Razack, Rezwan Razack and Noaman Razack and their family members own 33% each in the company. One source, who did not wish to be quoted, said, the family was still debating whether remaining private was in the best interest of the company's growth ambitions and for the future roadmap being readied by the promoters. In doing this, the promoters have looked at the experience of some city-based realty peers who went public.

"While the work on IPO may be still on, there exists a possibility of them not going ahead with the public issue for the time being at least," said a second source familiar with the situation. "I do not see the issue going through before June this year even if the momentum is stepped up," he added.

Further, the market appetite for real estate issues seems to be evaporating with the last few issues performing badly on debut. The last two listing in this space, DB Realty Ltd and Vascon Engineers, are currently trading below the lower band of their issue prices.

DB Realty, which had slipped by 10% on its debut, is currently trading Rs 456 against the issue price of Rs 468-486. Vascon, which is involved in EPC and realty business, is currently trading at Rs 141.5, a 14% discount to its issue price of Rs 165.

And there is still a long list of realty firms working towards an IPO. This includes over half a dozen players like Emaar MGF, Lodha Developers, Sahara Prime, Prestige Estates, Nitesh Estates, BPTP and Oberoi Realty. While BPTP has said it plans to raise Rs 1,500 crore in the early next fiscal, Emaar MGF and Lodha also have SEBI approval for a Rs 3,850-crore and Rs 2790-crore offerings, respectively, but have not decided on a timeframe for the issues.

"Valuation challenges are significant and the possibility of having to divest more shares than anticipated is real," explained a top honcho at real estate firm, which may be eyeing the public markets in the short run.

Prestige promoters have been running very closely-held operations and have shied away from private placements at the holding entity level several times in the past. The company has attracted private equity funds from CapitaLand of Singapore  and Redfort Capital at the SPV level. In context, it is left to be seen if the promoter family would walk the extra mile to convince the market, which is growing skeptical about more realty issues.

One of the reasons behind a possible IPO from Prestige was the fact that the next-generation promoters wanted to run a professional operation, and not being hands-on managers. And a listed entity was seen as better suited to attract professional managers. So a possible rethink and deferring of IPO plans could be dictated by the market conditions as well as a closer scrutiny of the business roadmap for the future.

A large part of its saleable area is in the residential space besides exposure in retail, commercial buildings and hospitality. For the year ended March’09, the company had a total income of Rs 914 crore with net profit of around Rs 77 crore. The realty sector, which suffered a severe slowdown on account of the global crisis, is now slowly recovering with sales picking up and the demand for quality office space now resurfacing. Source: VCCircle

Office India calls of Deal with Bangalore-based Brigade Group

Oracle India, which was in talks with Bangalore-based Brigade Group for 1.2-million sqft commercial space in its Brigade Gateway project, has called off the deal. The IT major was planning to take office space in Brigade Northstar, a 30-floor tower complex within Brigade Gateway, to consolidate its multiple leased spaces in Bangalore. Oracle told its employees in an email communication: “As you know, Oracle Real Estate has been examining the Brigade Northstar facility, as part of our strategy to consolidate our multiple leased spaces in Bangalore. This is to inform you that Oracle has decided not to pursue this location.” Oracle had planned to transfer 8,000 employees to the Northstar facility.

Had the agreement been successful, it could have been one of the biggest commercial space deals in Bangalore and could have made Brigade richer by Rs 600 crore. Oracle was in talks with Brigade for almost six months but the differences over in the prices quoted by the two led to the collapse of the deal. Oracle and Brigade Group refused to comment on the issue. Oracle was looking to move its first team to the new location approximately 12 months from November 2009. The company was planning to centralise its common operations and administrative functions.

In an earlier email communication to its employees, Oracle had said the new location was expected to fulfill the space requirements of many lines of business and would have accommodated approximately 50% of Oracle’s Bangalore staff. The rest were expected to occupy Oracle Technology Park and a few other locations. Northstar is a part of Brigade Group’s 40-acre township called Brigade Gateway and includes apartments, Sheraton Hotel, malls and Columbia Asia Hospital.

SPAR launches South India's biggest Hypermarket in Malleshwaram

Bengaluru, Karnataka, March 13, 2010 /TREN/ -- SPAR, the world's largest independent food retail chain spread across 35 countries, unveiled its flagship hypermarket in India under the license agreement between Max Hypermarkets India Pvt. Ltd. & SPAR International. SPAR at Malleshwaram is the country's biggest food store, spread over an area of 90, 000 sq ft. on a single floor plate. This SPAR flagship store is located at Mantri Square Mall, Sampige Road, Malleshwaram, one of the oldest residential localities in Bangalore. The mall has the capacity for parking of over 2000 cars in the basement.

SPAR brings a truly international shopping experience at Indian prices to customers. The aesthetics of this hypermarket are truly phenomenal. The systematically arranged sections at SPAR promise the customer an easy and hassle-free shopping experience. Be it the bakery, grocery, fruits & vegetables, dairy products, easy-to-cook products, meat, poultry & fish, wines, beer and spirits, home textiles, personal care, kitchenware, crockery, electronic products and IT and accessories or children's products, SPAR provides the widest range of quality and value-for-money products in the country.

The SPAR Hypermarket at Malleshwaram, Bangalore, guarantees to take the customer's shopping experience to an entirely new level. This is the 3rd SPAR store in Bangalore, after Koramangala and Bannerghatta Road, but is proudly the chain's "flagship" store.

Speaking on the occasion, Mr. Viney Singh, Managing Director, Max Hypermarket India Pvt. Ltd, said "Through the introduction of such large format stores, we hope to take the shopping experience in India to a whole new level. At SPAR, customer satisfaction takes precedence over every other aspect. We would like to provide our customers with the best of services, coupled with value for their money, and make their weekly shopping an experience to look forward to."

SPAR India benefits greatly due to its affiliation with both SPAR International and the Landmark Group. SPAR International provides expertise in the field of food retailing with best practices in designing and merchandising. The Landmark Group, whose stores are destinations for non-food retail, provides for superior sourcing and range of products.

Freshness, Choice, Value and Service are the Brand Pillars of SPAR and form the core of SPAR's retail philosophy.

Realty Companies Joining Hands with Land Owners to cut Expenses

Sky high land prices, unclear titles and a clear need to conserve cash are forcing some real estate companies to do joint development deals with landowners rather than splurge money in buying and holding land at expensive rates. Bangalore-based developers, such as Nitesh Estates, Prestige, Puravankara, Brigade and Mumbai-based Godrej Properties are adopting this route to develop properties, aware of the keen need to save cash in a market that is becoming increasingly tight-fisted for real estate firms.

“Developers no longer want put cash upfront and invest inland. The JV works both for developers as well as landlords,” said Amit Mookim, director, transaction advisory service (real estate), KPMG. Under the arrangement being discussed by some firms, landowners team up with developers through a special purpose vehicle (SPV). The owner comes on board as an equity partner in lieu of the land he puts on the table. When the project gives returns, the landowner gets a fixed percentage of the revenue in proportion to his equity holding.

The developer invests in the construction and marketing costs, but avoids tying up his funds in land. Bangalore-based Nitesh Estates will use this model to undertake new projects. “This is expected to allow us to deploy our capital towards development expenses and the expansion of our operations,” a company official said. Currently, Nitesh’s six out of seven ongoing projects and four out of the five forthcoming projects are being undertaken through this model. “It reduces the upfront land acquisition and our total project financing costs, though it requires us to either share revenue generated from such joint-developments or a portion of the developed area with the landowners,” said the official.

The need to conserve cash appears to be the paramount motive for the real estate firms in adopting such route. The slowdown last year greatly crimped the ability of real estate firms to raise cash. Though there was a rebound in the middle of the year when some companies did qualified institutional placement in a buoyant market, many firms seem to have realised the need to play it safe. Recently, the Reserve Bank of India ruled out another round of restructuring of bad real estate loans, dealing a blow to property firms which had hoped to get their loans reclassified as performing asset. That would have boosted their credit rating and helped them raise more money. However, with this option ruled out, companies don’t have any choice but to save cash and cut down on unnecessary stuff.

“Joint development model works for us as it is capital light and also contains risk. We do not have large debt on our book as compared to many other real estate companies,” said Adi Godrej, chairman of the Godrej Group. Godrej Industries’ real estate arm has lined up Rs 2,000 crore of investments for developing five projects over 30 million square feet (sq ft) in Bangalore. The Prestige Group plans to offer around 50% of its proposed eight residential projects in the luxury and non-luxury segment under the joint model. “Land owners are more keen to go in for joint development rather than out right sale of land parcel,” said Irfan Razack, CMD, Prestige Group. Brigade Enterprise, which plans to develop 8-10 million sq ft in the commercial and residential spaces by March 2010 will have 30% of the portfolio under joint development. “In outright land purchase there are many intangible and it calls for 8% registration and stamp duty charges. But in joint development model, one has to pay only 2% tax,” said Kailash Advani CEO Brigade Group.

Some firms such as Puravankara Projects are not embracing this route completely. “Purchasing land outright is the best possible as the appreciation is in land and not in construction,” said Ashish Puravankara director Puravankara Projects. “We will go for joint development model only where project demand and it will depend on case to case basis,” he added.

Sobha Developers to reduce debt via land sale

Sobha Developers Ltd plans to cut debt by the end of FY11, banking on cash inflows and monetisation of land sales, a top official said on Tuesday.

"We used to have a debt equity (ratio) of 2:1 earlier. This has been brought down to 0.85:1, going forward it will be further brought down to 0.5:1, before the end of next financial year (FY11)," Managing Director J.C. Sharma told Reuters Trading India chatroom. Sobha Developers has around 3,000 acres of land spread across 10 cities, of which Bangalore accounts for about 31 percent of the total land bank.

The company expects to monetise around 1-1.5 billion rupees from sales of land, he said, but did not provide the location of land which the company intends to sell. It had received 540 million rupees from sale of land in the quarter ended Dec. 2009.

Sobha is also confident of selling 2-million square feet of space in FY10, he said. It has sold 166 units till date out of a total 310 apartments at the recently launched Sobha Garrison, a luxury residential complex for army personnel, in Bangalore. He said there is a revival in the realty industry, even though it would take another two-three quarters for it to come back to normal situation. There could be also some price corrections by the end of the year in "some pockets", like "Mumbai market, where office space costs more than in Manhattan", Sharma added.

The company is also planing to launch about 8 million square feet of space in the next 12-15 months time across four cities, Bangalore, Pune, Coimbatore and a new location in Chennai. Sobha has currently 5.6 million square feet of contracts on hand, he said. 

(Reporting by Rajesh Kurup; Editing by Prem Udayabhanu). Source: Yahoo News

Residential market to lead realty recovery in 2010: CRISIL Research

A recent 10-city CRISIL Research report on the real estate market indicates that demand in the residential market is expected to turn positive in 2010 owing to improvement in affordability, steady economic growth and greater liquidity. However a decline in the currently over-priced capital values of all the three real estate segments - residential, commercial and retail - will persist through 2009. Further the commercial and retail markets will continue to witness erosion in lease rentals through the next two years.

The CRISIL Research City Real(i)ty Report provides comprehensive information and analysis of more than 400 areas across 88 micro markets in 10 cities - Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai-MMR, NCR and Pune.

Mr. Sudhir Nair, Head, CRISIL Research says, “Accelerated growth of Indian economy, recovery of global
economy, improved liquidity and expected fall in interest rates are key factors that will signal demand revival in the residential segment. This segment is likely to see a much faster revival due to strong underlying demand for housing and supply coming at attractive price points.”

Sudhir further adds, “Demand in the commercial and retail segment is likely to remain under stress for the next two years owing to excess supply and weak offtake.” The CRISIL Research City Real(i)ty report indicates that capital values for residential sector and lease rentals for commercial and retail properties have substantially corrected till March 2009 due to a slowdown in both the domestic and global economies, and also due to real estate becoming unaffordable. Cities such as Kochi, Chandigarh and Pune, which have greater investor presence as against end-users, witnessed a greater fall in capital values compared to other cities.

The situation is expected to continue through 2009 and 2010, particularly so for the commercial and retail segments. However CRISIL Research believes that demand for houses will improve in 2010, backed by lower home loan interest rates as well as better job security owing to higher growth in the economy. Hence, capital values are likely to stabilise in the first half of 2010, and increase during the second half of the year.
CRISIL Research feels that the pace of economic recovery and confidence revival will have an impact on
sentiments across all the real estate categories and will be an important variable to watch out for.

Bangalore