Mumbai-based mall development company Phoenix Mills is looking to expand its presence in Bengaluru. These plans are a part of its joint venture with PE giant CPPIB, which invested Rs 1,600 crore in the company earlier this year. In Bengaluru, Phoenix already has a functional mall that earns the firm Rs 100 crore in rental per year on an average.
Now, an additional 2 million sq ft will be acquired to compound the establishment. “We are planning to expand the retail space by 500,000 sq ft. Additionally, another 1.5 million sq ft of space can be used as a commercial office or a hotel, we have not exactly decided which,” confirmed Shishir Srivastava, joint managing director at Phoenix Mills. In order to implement this expansion, the company will need to purchase additional TDR (transfer of development rights) but the exact investment could not be determined immediately.
When the expansion is complete, it will be Phoenix’s as well as one of the country’s largest commercial establishments. At the moment, there are just two malls that are 2 million sq ft in size, owned by Blackstone and DLF.
Srivastava also said the entire funds raised from CPPIB will be deployed in the next one year. So far, the draw down has been about `720 crore. The plan is to add 5 to 6 million sq ft to its existing 6 million sq ft portfolio.
At the moment, Phoenix is the largest mall owner in the country but Blackstone is close on heels on taking over. In the past one year, Blackstone has acquired more than 4 million sq ft. But if all goes well, Phoenix will be able to replenish its pipeline to 10 to 11 million sq ft in the next one year. Unlike Blackstone though, Phoenix is more keen on buying land rather than income generating, functional assets. “The upside is more when the investment is at a more nascent stage,” explained Srivastava.
Still, it is not often easy to find suitable land parcels whereas the number of defunct malls in the country are by the dozens. Surely, there have been some offers. “Malls have to meet our standard of size, scale and design for us to take on. Unfortunately, there aren’t many that fit our bill and we cannot turnaround malls that are strata sold,” Srivastava added.
So recently, in Pune, where mall vacancy is considered high at 20%, Phoenix bought land to build a million sq ft mall.
Phoenix already has an existing mall in the city although the asset is not a part of Island Star, the company instituted by CPPIB and Phoenix. At the time of signing the deal, it was understood that Phoenix now owning all matured assets will scout newer geographies. But Srivastava said, in some markets, there are room for two Market City’s, the brand name Phoenix goes by. “Pune, for instance, has exceeded 5 million people now. A significant part of the city is not being served by our existing mall so we have acquired land on the western side, about 20 kilometres away,” said Srivastava. Interestingly, in the locality, its competitor will be Blackstone owned Westend Mall.
In fact, Blackstone and Phoenix are running neck and neck in new acquisitions in several markets.
For instance, earlier this year, Blackstone signed a deal in Indore. Sources said, Phoenix too was in the race but retracted plans because consumption levels in all markets are not high enough for two profitable malls. Experts said, in the Tier II markets, the consensus is that one million square feet can be successful but two might lead to cannibalization.
Strategies will be tailor made, Srivastava assured.
Phoenix raised Rs 1,600 crore from CPPIB in April this year. The deal pegged a capitalisation rate of 6.3%, making it one of the most lucrative ones. This transaction allayed questions regarding Phoenix’s growth plan as the company required to compound its pipeline since all its existing assets are more than 90% occupied. Only one mall in Bengaluru was included as a part of the deal, leaving enough headroom for future development. Phoenix later announced that its Pune acquisition of `161 crore is the first deal it signed as a part of the CPPIB joint venture.