Mumbai-based real estate company K Raheja Corporation and US-based multinational JP Morgan, promoters of the Airoli Gigaplex commercial project in Navi Mumbai, have decided to part ways.
Mumbai-based real estate company K Raheja Corporation and US-based multinational JP Morgan, promoters of the Airoli Gigaplex commercial project in Navi Mumbai, have decided to part ways. The project has been valued at approximately Rs 1,600 crore, people familiar with the development told FE.
JP Morgan held a 49% stake in the project, while K Raheja Corporation retained majority ownership. After pencilling in a debt of Rs 800-900 crore , Rahejas are believed to be paying JP Morgan approximately Rs 350-400 crore to take full control of ownership.
On November 26, FE had reported that K Raheja Corporation was in talks to buy JPMorgan’s stake in the project. FE had ascertained the value of the project at Rs 2,400 crore at the time.
JP Morgan had invested in the project, back in November 2007 and it formed one of its vintage investments in the country. Later, in 2010, the firm had partially exited this investment when the ownership changed hands from B Raheja Builders to K Raheja Corporation. At the time, JPMorgan sold a portion of its existing stake at an IRR value of 16.7%, according to the company’s own disclosures.
Executives at K Raheja Corporation and JPMorgan declined to comment on the story. Gigaplex is estimated to be a 4.8 million sq ft development, of which 1.2 million sq ft is currently leased out to companies such as IGATE, Capgemini, Axis Bank and Bhansali Infotech.
According to property consulting firm, Cushman & Wakefield, rentals in the area are about R50 per sq ft per month, and is expected to rise by 8%-10% over the next one year.
The JP Morgan exit is in keeping with the trend that promoter-buybacks is the most common mechanism by which private equity (PE) funds exits from real estate projects in the country. A JLL India PE report states that this could be because there is lack of secondary investors in the market.
However, with the influx of PE investments (especially foreign funds) into commercial real estate indicates that no one wants to take their eye off a Grade-A development at the moment. Marquee rent yielding assets are witnessing massive interest and investments from top notch global players such as Blackstone, CPPIB (Canadian Pension Plan Investment Board), QIA (Qatar Investment Authority), GIC (Government of Singapore Investment Corporation) etc who are wooing local partners and taking positions, anticipating robust growth in rentals.
Naturally, a number of real estate companies have chosen to buy back the stakes of private equity partners once the investment has gone through the life cycle of seven years, especially in the commercial segment. “Promoters want to exercise 100% control in projects, strengthen the commercial portfolio and possibly divest stake when the market favours,” said Rajeev Bairathi, executive director of capital markets and north at Knight Frank India. Bangalore based company, Prestige Estates is another case in point that is the process of buying back its commercial project, Exora Park from Red Fort Capital. K Raheja Corporation had earlier articulated its plan to launch a real estate investment trust or REIT issue, provided tax related issues pertaining to REITs are rationalised.