Developers eye mixed-use projects to generate cash flow

By: | Published: February 2, 2015 1:26 AM

DB Realty recently announced it would develop its two acre parcel in Marine Lines as a mixed-use project...

The mixed-used formula certainly seems to be the only way out because with the hotel sector suffering high vacancy levels — supply of rooms has doubled in two years — capital is languishing.The mixed-used formula certainly seems to be the only way out because with the hotel sector suffering high vacancy levels — supply of rooms has doubled in two years — capital is languishing.

DB Realty recently announced it would develop its two acre parcel in Marine Lines as a mixed-use project rather than build just a hotel. So it’s combining a residential property, a mall, a hotel and an office tower in one single, large complex. The change of plan has been necessitated by the need to generate cash quickly; while hotels and commercial properties take time to deliver returns, it’s far quicker for a housing complex where the cash flows in almost immediately.

Indiabulls Asset Management CEO Ambar Maheswari is convinced that a mixed-use project works best when there’s a residential piece since that’s what generates the bulk of the cash flows. And as Anshuman Magazine, CMD, CB Richard Ellis, points out, it’s one way to mitigate risk since demand from the residential space feeds the retail and hotel segments.

The mixed-used formula certainly seems to be the only way out because with the hotel sector suffering high vacancy levels — supply of rooms has doubled in two years — capital is languishing.

Which is why Hubtown, which bought Hindoostan Mills in central Mumbai along with DLF in 2007 hoping to build a hotel, abandoned the idea altogether. Vimal Shah, MD, Hubtown, confirmed to FE, his team didn’t feel it would be a viable venture. Now, Oberoi Realty has roped in Ritz Carlton for the Worli complex in central Mumbai.

Indeed, over the past year or so, a host of hoteliers have reached out to real estate companies, whether in Mumbai, New Delhi or Bengaluru. And the Godrej Group is looking to do the same in Vikhroli.

To be sure, such mixed-use ventures require a fair bit of capital — the Logix Group, which recently joined hands with Hilton Worldwide, has said its six-acre project in Noida will require R1,000 crore. In the garden city, the Brigade Group built the World Trade Centre using the Sheraton brand; in the country’s financial capital Oberoi Realty came up with Garden City — a residential complex — that houses the Westin Hotel.

The financial viability apart, developers of hotels in Mumbai have also had to roll back their plans with the government altering the FSI rules—the area that can be developed on a particular plot. Many had bought land during 2005-2007, assuming they would be permitted an FSI, upwards of five but the government changed is mind. Given a mixed-use project will not require fresh permissions, that would appear to be the best way ahead for most.

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