The company plans to start construction of its “aspirational luxury’ project in the next three to six months...
With 23 million sq ft of both commercial and residential real estate developments spread across 25 projects, of which 21 are in Mumbai alone, Sunteck Realty Limited, is one company that does not have any short-term or long-term plans to shift its focus from Mumbai. The company is currently looking at acquiring distressed projects in both the affordable as well as the luxury segments. It may also consider the REITs option for the Oshiwara District Centre (ODC), a mixed-use development coming up in Goregaon.
Plans for REITS
"Sunteck owns 23 acres at Oshiwara District Centre (ODC), Goregaon (W) in Mumbai, wherein, we are coming up with a large format mixed-use development Sunteck City, which will have a mix of residential, commercial, high street retail, fine dining and entertainment zones. This development will be phased over the next 4-5 years. Once fully developed, we may consider various options for generating shareholder value through the commercial portfolio at ODC, and REITs as a structure could potentially offer attractive returns to our stakeholders," Kamal Khetan, Chairman and Managing Director, Sunteck Realty Limited, told Moneycontrol.
The new commercial complex, which would comprise around five towers, is part of an ongoing mixed-used development called Sunteck City. The company expects to start construction of the commercial buildings in the next six months and plans to deliver the entire complex by 2021-2022.
“In ODC, we are doing 2.6 million sq ft of commercial and retail. We are exploring the possibility of doing one hotel as well. We feel there is captive consumption for that too,” says Khetan.
Plans to acquire distressed projects
The real estate firm has recently entered into a joint development agreement with a local developer to construct an affordable housing project on a 100-acre land parcel in Naigaon, a suburb in western Mumbai. As per the area-sharing joint development agreement, Sunteck will get 74 percent of the developed space and the balance will be handed over to the local developer.
The second acquisition by the company in a slow-moving market has to do with a stake in an ultra luxury project located on Napeansea Road in Mumbai recently. Sunteck Realty Ltd recently acquired BSE-listed troubled developer Orbit Corp Ltd’s property Baug-E-Sara situated in the Malabar Hills area for around Rs 34.20 crore.
“We have taken a stake in this project recently. This confirms that we will not only do distress acquisitions in affordable but also in the luxury and ultra-luxury segments,” says Khetan.
“Thanks to demonetisation, GST and now RERA, we are now seeing a lot of unorganised developers coming forward to do Joint Ventures (JV) and Joint Development Agreement (JDA) with organised developers. We don’t want to be aggressive in doing this all across India, we are focusing only on MMR as there is so much we can do. In Naigaon too, where we are developing an affordable housing project spread across a land parcel of 100 acres. A local landlord has decided to join hands with us. These 100 acres were an opportunity for us due to the distress in the overall market. This will give us a top line of almost Rs 4,000 to Rs 5,000 crore in the next five to six years. Otherwise in a good market, why will a local landlord with a Rs 50 crore upfront give a refundable deposit, why sign a JDA in this terms when the land value will be almost close to a Rs 1,000 crore. We are giving brand value and financial strength,” he says.
“We want to leverage the strength of our balance sheet to do good acquisitions in this distressed market where a lot of developers are struggling. We want to pick up those kinds of assets and take advantage,” he adds.
The company plans to start construction of its “aspirational luxury’ project in the next three to six months. In the first phase, it is looking at close to 2 million sq ft with a ticket size of Rs 50 lakh onwards. The project will be spread across four to five phases and the total development will be almost 10 million sq ft to be completed within a span of six to seven years.
In the first phase, close to 2000 units will be launched and will take three years to complete. “Depending on the success of the first phase, we are looking at launching the second phase maybe next year itself,” says Khetan.
A separate vertical for affordable housing
The company hopes to take full advantage of the Pradhan Mantri Awas Yojana (PMAY) scheme and wants to be in different locations within MMR to take that advantage. It has launched a separate vertical under the aspirational homes banner to promote housing under this scheme. It is planning to invest close to Rs 1000 crore over the next two years to develop these projects.
“We have all along been an ultra-luxury brand and do not wish to dilute that. Therefore, we have now created a separate vertical to focus on affordable housing segment. We like to call it an aspirational luxury rather than affordable. Only the houses will be small but they will have all the amenities and facilities,” he says.
The company is planning to launch more ‘aspirational luxury’ projects in western and eastern suburbs of Mumbai. “We are already in discussions with a couple of people in western and eastern suburbs. It has to be minimum of 30 to 40 acres (affordable housing) otherwise it is not viable,” he says.
No faith in land banking
The company today has close to 23 million sq ft of both commercial and residential developments across 25 projects of which 21 are in Mumbai.
“We started with the ultra-luxury segment and now want to get into aspirational. But have never considered land banking We believe no business can survive on an inventory for 25 years, the land is an inventory that a developer cannot keep blocking capital in. We have grown by the JVs and JDAs model. To grow, we tied up with credible partners such as the Piramal Group. We did close to 11 to 12 projects with them. We also entered into a tie-up with Kotak Real Estate fund. These were the two big partners that helped the company grow, get into corporate governance,” says Khetan.
Expansion plans only if there is a ‘sweet deal’
The company has signed joint development agreements for both residential and commercial projects in Nagpur, Goa, Jaipur, and downtown Dubai. It has invested close to around Rs 289 crore in projects outside of Mumbai.
Almost five years ago, it completed a project along with Piramal Group as a partner in Oman/Muscat.
“As for plans to expand in other states, we have learnt from the mistakes of other developers. Execution becomes a big challenge. We have explored a few markets outside Mumbai but done that when we have got a very sweet deal and capital investment is negligible to the size of the investment. That has helped us in spreading the risk,” says Khetan.
“We want to use the strength of our balance sheet to do good acquisitions in this distressed market where a lot of developers are struggling. We want to pick up those kinds of assets and take advantage,” he adds.Vandana.firstname.lastname@example.org