Canadian investment fund Brookfield Asset Management recently won the bid to acquire two floors of office space in Mumbai's business district of Bandra Kurla Complex (BKC) from the grounded Jet Airways recently for Rs 490 crore, a price which is roughly 25 percent lower than the market price.
Real estate experts say that, going forward, this may not impact capital valuation of Grade A office spaces in the area as there has been no fresh premium office supply addition in the BKC market of late and the Grade A vacancy percentage has also reduced from two digits in 2018 to below 7 percent in the last two quarters.
“Grade A building vacancies are below 7 percent and there is no new supply coming up for the next four years at least in the BKC micro market. Office market fundamentals in this area remain strong,” says Karan Singh Sodi, the regional managing director, of JLL India.
The total saleable area of the entire Godrej BKC building is over 1.2 million sq ft. The third and the fourth floor that have been recently acquired by Brookfield Asset Management comprise just about 10 percent of the building, experts told Moneycontrol.
JLL India had facilitated the sale of IDBI Towers spread across 3 lakh sq ft to Securities Exchange Board of India in the third quarter of 2018 that had fetched over Rs 900 crore at Rs 30,000 per sq ft. The Citigroup Centre office spread across 1,30,000 sq ft had fetched over Rs 400 crore at capital value of Rs 36,500 per sq ft in the third quarter of 2019.
During the lockdown, some HNIs have been in discussions for the sale of some assets in BKC at a price point of Rs 36,000 per sq ft, sources said.
Godrej BKC has witnessed rents increase from Rs 235 to 240 per square foot (psf) in the last quarter of 2018 to Rs 270-275 psf level in recent months.
Rents, too, have gone up by 18 to 20 percent due to scarcity of new supply in the area. Letters of intent (LOI) are also being signed by clients who are in the process of renewing the lease of Grade A properties at a rent of around Rs 300 per sq ft. It was Rs 260 per sq ft six months ago, brokers told Moneycontrol.
In COVID-19 times, Maker Maxity building has fetched a rent of Rs 450 per sq ft as there is no new supply and the vacancy levels have dropped. “Leasing may remain muted in 2020 but normalcy will return by 2021. Rents will stabilize at 275 per sq ft,” real estate experts said.
Landlords have not been open to waivers either.
“No waivers have been granted due to the lockdown as existing contracts do not have a force majeure clause for a pandemic or a lockdown situation. But, this clause is being included in the new leases,” brokers said.
More about the Jet Airways property
The third and the fourth floors of the building are spread across 1,69,983 sq ft saleable area. The reserve price of the recent transaction translates to a value of Rs 28,900 per sq ft.
Godrej BKC is a 19-storey commercial project, jointly developed by Godrej Properties Ltd (GPL) and Jet Airways (India) Ltd in 2011. Godrej Properties had acquired the development rights from Jet Airways to build the property.
In September 2015, pharmaceutical firm Abbott India Ltd bought 435,000 sq ft for total value of Rs 1,475 crore in BKC.
Jet’s two floors had been mortgaged to HDFC. Earlier in June, the National Company Law Tribunal had allowed the sale of the property.
According to reports, the proceeds of the sale will be used to clear the grounded airline’s debt. Around Rs 360 crore from the sale will be paid to HDFC against its claim of Rs 424 crore. A portion of the proceeds will be used to settle a pending aircraft loan from the US Exim Bank.
"Pursuant to the e-public auction held on June 26, 2020, Vrihis Properties Private Limited, has emerged as the successful bidder. The company has decided to accept the offer of the Successful Bidder for the transfer of the immovable property, at a price of ₹490 crore," the company had said in the filing last week.
“The proceeds from the sale will be utilised as per the directions of the Hon’ble NCLT, Delhi, Principal Bench in its order dated June 11, 2020. The Successful Bidder is not a part of the promoter group of the Company or a group company. The proposed transaction will not qualify as a related party transaction.
"The sale and purchase is contingent upon transaction documents proposed to be executed between the Company and the Bidder. Importantly, the proposed transfer of the Immovable Property by the Company to the Successful Bidder is contingent (amongst other things) on the Successful Bidder obtaining the consent of the Mumbai Metropolitan Region Development Authority for transfer of the Immovable Property to the Successful Bidder,” it said.
Vrihis Properties is an entity controlled by Brookfield Asset Management. The Canada-based investment fund owns 25 million square feet of commercial space in the country and was the sole bidder in an auction last week.
The resolution professional managing the insolvency proceedings of Jet Airways had issued a public notice on June 13 for the sale of two floors (3rd and 4th) of the company’s building known as Jet Airways Godrej BKC through a public auction.
Jet Airways had shut down in April 2019 and was under the insolvency process since June 2019.