Big-ticket property deals hit in Mumbai

The slowdown in the economy has cast its spell on the sale and lease of big-ticket commercial properties worth Rs 2,500 crore (Rs 25 billion) in the country’s commercial capital.

While the sale of Essar Group’s Equinox Business Park in Kurla and Air India’s plans to lease its headquarters in Nariman Point have been hit due to a valuation mismatch between buyers and sellers, ICICI Venture’s plans to sell its stake in Express Towers is taking time due to a slowdown in the market.

The 1.2-million-sq-ft Equinox Business Park, owned by Essar’s realty arm Equinox Realty Holdings, was on the block for a year. Equinox was expecting a valuation of Rs 2,000 crore (Rs 20 billion) from the sale of property.

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Although big private equity investors such as Blackstone, Morgan Stanley, and Singapore-based developer-investors Ascendas and Mapletree, had shown an interest in the property, the offers did not cross Rs 1,800 crore (Rs 18 billion) and the deal could not succeed, said an executive in the know.

“There was a mismatch of Rs 200 crore (Rs 2 billion) between how much Equinox was expecting and the amount investors were willing to pay,” said the executive.  When contacted, Cherag Ramakrishnan, CEO, Equinox Realty, said he was travelling and would not be able to comment.

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The valuation issue has hit Air India’s plans to rent its headquarters at a 23-storey building in Nariman Point.

“Air India has set a price of Rs 350 a sq ft and not many have showed an interest in leasing,” said a property consultant. 

“These days, not many prefer to lease offices in Nariman Point and most of the A grade buildings quote between Rs 225 a sq ft and Rs 275 a sq ft,” said Raja Seetharaman, managing director of Aperon Realty, a property consultant.

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Some sale transactions, such as the one by private equity firm ICICI Ventures, which had put its stake in the iconic Express Towers in Nariman Point on sale, are taking time due to tough market conditions, said sources close to the deal. 

Despite being in the market for nine months, ICICI Ventures is yet to conclude any deal.

“It is a big deal. Markets have become tough now and that is why it is taking time. The deal might take a couple of more months,” a source said. ICICI Ventures was looking at a valuation of Rs 550 crore (Rs 5.5 billion) for its 49 per cent stake in the 25-storey building.  It bought the stake in the building for Rs 358 crore (Rs 3.58 billion) in 2008. When contacted, an ICICI Venture spokesperson declined to comment. 

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Sources close to the deal, however, said the company had received three term sheets from interested parties and was currently evaluating them.

According to consultants, the slowdown in the economy, coupled with high expectations of sellers, has hit big ticket transactions.

“There is little liquidity in the market and very few institutional players are looking to buy income generating properties. But sellers' expectations are still high and that is creating issues,” said Ambar Maheshwari, managing director, corporate finance at property consultant Jones Lang LaSalle.

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Added the head of another property consultancy: “During boom times, buyers loosen their purse strings easily. Today, they think if they write a big cheque, they should get a good deal.”

Absorption of office spaces has come down by 35 per cent in 2012 as against 2011, when the total absorption for the year was at the a historical high of 9.6 million sq ft.

In the first half of 2013 however, absorption levels are expected to be 40 per cent higher than the same period in the previous year.