In one of the biggest transaction in the real estate office space, global pharmaceutical major Abbott has bought 4.35 lakh square feet space for a whopping Rs 1,479 crore in Godrej BKC, an under-construction office building in Mumbai’s Bandra Kurla Complex.
Godrej Properties, the real estate arm of Godrej Group had partnered with Jet Aiways in 2011, for development of this approximately 1.3 million square feet commercial real estate project in the alternative business district of Mumbai. The project which is expected to be complete and ready for occupancy by mid-2016, has 3,00,000 sq ft left to be sold.
Pirojsha Godrej, managing director & CEO, Godrej Properties said that this deal will be an important driver of the company’s plans to unlock capital invested in its commercial portfolio and will also hasten the pace of company’s growth going forward. The management in the past occasions have said that their focus would be on the residential segment.
“Majority of our debt, around R1,800 crore has been on account of Godrej BKC, so with this transaction, we should see a noticeable reduction in those levels in the coming quarters,” Godrej told Fe. He said that the company has already received “majority” part of the deal value, and the remaining will flow in the next 6-9 months as construction linked payments. He refused to disclose details of the payment breakups.
Sandipan Pal, who tracks GPL at Motilal Oswal Securities said, “If the company reduces its debt by about R800 crore, the debt equity ratio will reduce to 1x, which will bode well because this project has contributed significantly to Godrej Properties’ overall debt. Selling Godrej BKC has improved the company’s overall return on capital investments”.
GPL’s gross debt stood at R3,290 crore at the end of March 31, 2015, up from R2,429 crore at the end of March 31, 2014. Calling it a good valuation, Godrej said that the average sale price in Godrej BKC is Rs 26,000 per square feet, while the Abbott transaction closed at about R34,000 per square feet given that it was a “high quality contiguous space”. In the fourth quarter of FY15, the company closed a deal at R28,000 per sq ft, Godrej said without divulging details.
Market experts say that this will be a benchmark deal, but not necessarily a start of any price trend. Ashutosh Limaye, head (research), Jones Lang LaSalle India said, “Abbott deal is just a latest reference point for the market, but it is not necessary that all deals will happen at this rate. Though in a general economic sense, the more one buys the lesser the price paid, but in case of real estate that may not apply all the time. A lot depends on the quality of space on offer, floor divisions, location, and to an extent the construction stage of the building also plays a role. Ready to move-in or nearing completion buildings will command a premium over others”.
In another benchmark transaction, in 2012, Citigroup had bought 2.97 lakh sq ft space across six full floors of the 12-story First International Financial Centre (FIFC) Tower for R985 crore, also in Bandra-Kurla Complex, which was a biggest transaction of recent times.
Limaye added that BKC is a preferred office location by multi-national corporations looking for a presence in India, but it is not a cheap location and therefore only companies with good budgets would be able to afford it. “Abbott being a market leader in their field will not have an issue of budget, so the occupier profile will be the likes of such companies in BKC,” he said.