Lenders warm up to commercial real estate

Tags: Companies
Commercial real estate is gradually emerging as hot favourite for banks pushing credit to the corporate sector. Mumbai-based Lodha Builders has secured Rs 890 crore in bank finance for its residential project in Mumbai. The loan will be disbursed through a special purpose vehicle. Canara Bank and Andhra Bank are part of a six-bank consortium lending to Lodha.

A senior public sector banker involved in the deal said, “Banks are selectively funding real estate projects in the residential segment since there is good demand and there is no big inventory pileup. Besides, the margins are higher in the sector with commercial real estate loans being priced at least 400 basis points higher than the base rate.”

Abhishek Lodha, managing director of Lodha Group, declined to comment on his company’s fund-raising plans. Lodha Group, a leading realty player, recently acquired an 88-acre land parcel in the Thane region for Rs 1,154 crore from Clariant India. The group plans to develop residential projects on the parcel, and expects to have all permissions in place in 12 to 18 months.

Banks usually lend to real estate companies through special purpose vehicles created with every project so that money is not siphoned off to other projects or diverted to other business activities.

Banks have been warming up to residential real estate because of higher returns and as demand always exceeds supply, especially in the metros. Bank credit to commercial real estate grew 22.4 per cent to Rs 1,54,400 crore in 2013-14 over the previous year. This is second only to loans given to micro and small enterprises, which posted 23.7 per cent year-on-year growth in the same period. Even the home loan segment grew by only 18.4 per cent to Rs 5,40,800 crore during this period.

The privately-held Lodha Group’s net sales exceeded Rs 8,700 crore in FY2012-13. At present, the group is developing over 35 million square feet of prime real estate, with over 20 projects in Mumbai, Pune, Hyderabad and London. The company is one of the largest employers in Mumbai with over 3,500 direct associates and over 25,000 workmen at its sites.

In the past 12 months, the group has acquired two other landmark land parcels – the 17-acre Mumbai Textile Mills parcel from DLF and the US government’s Washington House property on Altamount Road in the city. The group recently expanded internationally and acquired the landmark MacDonald House in prime central London from the Canadian government. Located at 1, Grosvenor Square, this property is widely regarded as among the world’s most prestigious addresses. The group followed this by acquiring another prime London property ‘New Court’ on Carey Street.

JP Morgan, Deutsche Bank, HDFC Ventures, ICICI Ventures and State Bank of India have invested in the Lodha group.

manjuab@mydigitalfc.com

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