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Mumbai: Funds crunch forces builders to eye JVs, take up slum rehab
The Times of India  |  April 11, 2019

Nauzer Bharucha Mumbai

A slowdown in the city’s property market has led to a churn in the realty industry with builders struggling to complete their projects and looking for financially stable partners to help them do so.


The liquidity crunch has hit many developers hard. In the latest development, Godrej Properties, part of the Godrej Group which is Mumbai’s biggest private landowner, has for the first time entered a slum rehabilitation project. Last week, it signed an MoU with Omkar Realtors and Developers to redevelop Nargis Dutt Nagar, a 4.2-acre slum sprawl at Bandra Reclamation. The sea-facing slum enclave is prime property.


As part of the deal, Omkar will handle the rehabilitation of 1,300 slum tenements and rehouse the slum families free of cost on a portion of the land. Godrej will construct the free sale component of 1.1 million sq ft and sell it as a luxury residential project.


Financially stressed builders look to sell land banks to healthy players


Builder Sudhakar Shetty, who once owned Deepa Bar in Vile Parle—it shut down in 2006—is also a minor stakeholder in the redevelopment of Nargis Dutt slum. Omkar bought over Shetty’s development rights in this project.


Omkar MD Babulal Verma did not comment on the project, but told TOI that his business model is to enter into joint ventures with prominent builders to execute construction projects.


Real estate market source said at least 70 projects of around a dozen financially stressed builders in Mumbai are waiting to be either acquired by larger developers or to be jointly developed.


“Projects by small developers are expected to be acquired by bigger players. Struggling developers are looking to sell their land banks to players with strong finances and hunger for expansion,’’ a city developer told TOI.


“The realty estate sector is expected to get leaner through joint developments, joint ventures and development management between land owners and small developers with established players. Even banks and NBFCs are pushing for consolidation of their stressed portfolio,’’ he added.


D B Realty, once a powerful construction firm headed by partners Vinod Goenka and Shahid Balwa, has been scouting for partners for its incomplete projects. One of its prime projects at Prabhadevi, Crown, comprising three luxury skyscrapers on a 5.75-acre plot, has been taken over by developer Rustomjee as part of a “development management’’ agreement.


Boman Irani, chairman & MD of Rustomjee, said, “We have been approached by various developers and financial institutions to evaluate projects that would be better served with fresh infusion of capital, change of brand, enhanced execution skills.’’


He added, “Some developers who have not been able to raise the requisite finances or whose projects have been held up due to other circumstances are now looking at tying up with developers wherein the project can be completed successfully.’’


Sudip Mullick, partner, Khaitan & Co, said developers would look at investing money to complete ongoing projects only if there is substance left in the project of a struggling developer.


“Big, cash-rich players are looking at investing in large projects where they would control construction, but procuring permission and approvals will sit with the existing developer,’’ said Mullick.


According to data collated by Anarock Property Consultants, nearly 1.92 lakh apartments worth Rs 2,17,550 crore are currently stuck in various stages of non-completion in Mumbai Metropolitan Region.


These projects are delayed due to multiple reasons, including a liquidity crunch involving developers. They were launched in 2013 or before that.


“Despite having the will to complete some of these projects, some builders are stuck due to a funds crunch. Thus, this trend where financially stressed builders are scouting for stronger developers to either jointly develop projects or for a complete takeover is gaining ground,’’ said Anuj Puri, Anarock chairman.


“This seems to be a viable solution, particularly because both banks and NBFCs—a major fund source for developers—have become extremely cautious in lending out funds to developers,’’ he added.


Private equity funds are also sensing an opportunity in these financially stressed projects and are coming forward to act not just as mere investors but also have a say in project designing, pricing, etc. For instance, Kotak Realty Fund invested nearly Rs 100 crore in a commercial project near Andheri-Kurla Road last year which helped the builder partly pay his loan and also help complete the project.


Last year, Nirmal Lifestyle roped in construction giant Shapoorji Pallonji as a partner to execute two of its projects in Mulund. Nirmal also had a partnership deal with Godrej Properties to build one residential project in Thane. “This has helped Nirmal Group to raise money and thus reduce their debts,’’ said Puri.


Radius Developers took over Rohan Lifespace’s luxury project at Hughes Road and another upscale project called Avenue 54 of Sumer Developer in Santa Cruz. Interestingly, Radius itself is selling its One BKC building to Blackstone for Rs 2,500 crore to reduce its debt to Indiabulls Finance by Rs 1,700 crore.