Blackstone, Panchsil tighten grip on prime central Mumbai project

Realty circles are abuzz with the news that the global private equity fund Blackstone Group is close to acquiring a strategically located commercial office property in central Mumbai, marking the third such deal since the beginning of this year.

The property in question is an under-construction commercial building in Mumbai's Dadar area that belongs to the city-based Kohinoor CTNL Infrastructure Co. Pvt. Ltd (KCICPL). The offer? A whopping INR 1,250-crore, made jointly by the Blackstone Group and Panchsil Realty, the Pune-based developer.

While the deal is still under wraps, informed sources add that the much-delayed project – Kohinoor Square – is close to completion and the new owners plan to lease out the centrally-located property at approx INR 150 psf, post the completion of the project by the Panchshil group. The project is housed on a 4.8-acre plot of land which earlier housed the defunct Kohinoor Mill.

KCICPL was incorporated in 2005 as a SPV to undertake the development of commercial and retail projects in Dadar by the Kohinoor Group which holds approx 60 percent in the project. The IL&FS Group owns 39 percent via its real estate fund IIRF India Realty VII Ltd, with the IL&FS Trust Co. Ltd owning the balance.

As per an Icra report, KCICPL had reported a net loss of INR 136.18 crore against an operating income of INR 717.93 crore, for the year ended March 31, 2014.

About a decade ago, the Kohinoor Group which was promoted by veteran Shiv Sena leader and former Mah CM Manohar Joshi and son Unmesh Joshi had bought the land for INR 421 crore, in tandem with Matoshree Realtors Pvt Ltd. But a failing real estate market coupled with delays in securing regulatory approvals witnessed Mathoshree selling off its stake to the Kohinoor Group in 2008.

On gaining complete control, the group opted to rework the project into a single office tower-cum-residential project from the shopping mall and office space combination decided earlier.
   
As per its current status, the project is expected to be completed by April next year. The company has also managed to tie up the debt funding for the increase in costs. However the rating is also constrained by high market risks, with sales for 44 percent of the total area yet to be tied up.

According to sources once the deal is signed and sealed, it will be Blackstone's third office purchase this year. Two of these have been in Mumbai and have been closed in partnership with Panchshil Realty.

In early 2014, the two companies had jointly acquired Mumbai's iconic Indian Express Towers at Nariman Point for nearly INR 900 crore. This was followed by the acquisition of the 247 Park Office project from Hindustan Construction Co. Ltd's real estate arm and IL&FS Milestone Realty Advisors for INR 1,060 crore.

Post the buyout of the 247 Office Park project, the private equity firm has nearly 32 million sq. ft of office space spread across key cities including Mumbai, Bengaluru, NCR and Pune.

Even though other private equity funds and pension funds have formed joint ventures to acquire commercial office assets in the country, none have been able to match Blackstone in its race to become the largest landlord when it comes to Indian grade-A commercial office buildings.

According to CBRE's India Office Market View, Mumbai saw a considerable amount of office space completion during the first half of 2015, with most of the new supply concentrated in the Bandra Kurla Complex, Andheri and Lower Parel.

As per industry experts, the acquisition of grade-A office space is likely to remain strong with large investors looking at a business model with a long-term investment perspective, stable yield and an eventual exit through a real estate investment trust (REIT) listing.