Lodha takes big strides amid gloom
The real estate developer may have deferred its IPO and realty may be in the dumps, but that hasn't stopped it from making acquisitions worth Rs 12,000 crore
Dec 10, 2013
Source : The Times of India


MUMBAI: Late last month, Mumbai-based Lodha Developers hit the headlines when it announced the acquisition of MacDonald House, an upscale property in one of the most sought-after localities in central London which is near the old US embassy, for close to Rs 3,000 crore (£299 million) from the Canadian government. The 0.67-acre property is located in the heart of the city and houses the Canadian High Commission. Once it is completed, the acquisition will make Lodha Developers the owner of one of the toniest pieces of real estate in London.

MUMBAI: Late last month, Mumbai-based Lodha Developers hit the headlines when it announced the acquisition of MacDonald House, an upscale property in one of the most sought-after localities in central London which is near the old US embassy, for close to Rs 3,000 crore (£299 million) from the Canadian government. The 0.67-acre property is located in the heart of the city and houses the Canadian High Commission. Once it is completed, the acquisition will make Lodha Developers the owner of one of the toniest pieces of real estate in London.

The deal is significant for two reasons. This is the first time that an Indian developer has ventured into the London market. So far, Indians had ventured only into West Asia. It has also happened at a time when the Indian real estate market is in the dumps - demand is well below supply and developers are reeling under a liquidity crunch. And this is not a small acquisition. To raise so much money in these days of tight liquidity at home is no joke. Naturally, people are asking if Lodha Developers has bitten off more than it can chew.

Abhisheck Lodha, the 34-year-old managing director of Lodha Developers, is no stranger to such questions. In 2012, Lodha Developers had bought 17 acres from DLF, the country's largest real estate developer, in Worli, Mumbai, for a jaw-dropping Rs 2,725 crore. (DLF had bought the land from state-owned National Textile Corporation for Rs 703 crore in 2005 but decided to exit in a few years; it made a killing on the transaction.) "When we bought the DLF plot, everyone asked how we will manage it. Whatever we have done is there for everyone to see," Lodha said from London.
Getting the mix right
What Lodha has done is that he has launched a mixed land-use project called The Park on the plot. The project boasts celebrity connections: Bollywood actress Aishwarya Rai Bachchan is the brand ambassador. Lodha has tied up with US-based Trump Organisation to build a tower inside the project. The 800-feet tower will comprise two or three units on each floor, with a mix of 3BHKs and 4BHKS. The price tag will be Rs 8 crore and above. According to the company, the tower with its golden edifice will be "an icon on the Mumbai skyline". Lodha claims the project has already racked up sales worth Rs 10,000 crore . It is not clear if this is the money that will bankroll the London acquisition.
In addition to the DLF and London acquisitions, the Lodha group bought a plot in Wadala from the Mumbai Metropolitan Region Development Authority for Rs 4,053 crore in 2010. It is considered the biggest real estate deal in the country so far. In all, Lodha Developers has spent over Rs 2,000 crore on buying land in the last three years, making it the largest land buyer in the country. In addition, the company repaid Rs 2,542 crore to Deutsche Bank last year. Deutsche had invested Rs 1,640 crore in Lodha Developers in 2007 by buying convertible debentures of the company. The company, it is worth noting, has found all this money even though it deferred a Rs 2,000-crore initial public issue in 2010 due to the volatile markets. So, where's the money coming from?
Lodha, for his part, says most of the acquisitions, including the recent one in London, have been funded through internal accruals. In a recent interview with Business Standard, Lodha had said the company did sales of Rs 8,700 crore in 2012-13, which is the highest for any real estate developer in the country. (If Lodha's numbers are accurate, his company has overtaken DLF which did sales of Rs 7,772 crore in 2012-13.) There is some scepticism, though. Raja Kaushal, managing director of Gatere, an alliance partner of BNP Paribas Real Estate, believes there is a difference between the announcements made by unlisted Lodha and its listed peers: "Listed companies need to disclose numbers every quarter, but Lodha does not have that obligation."
Lodha had insisted in an earlier interview that business was booming. "We had cash flows of Rs 2,500 crore last year and we will have cash flows of Rs 3,000 crore in 2013-14," he said. "We have the best credit facilities in the country and our average cost of funds ranges between 10.5 per cent to12 per cent." The Lodha real estate empire is closely held. According to Bloomberg Businessweek, Lodha serves or has served as a director on the boards of more than 40 companies, most of them in real estate and linked to the Lodha name. Business Standard could not access the balance sheet and financial performance of these companies, except for Cowtown Land Development which reported revenue of Rs 491.74 crore and loss of Rs 25.39 crore in 2012-13.
No debt problem here
Sanjay Dutt, the managing director of property consultancy Cushman & Wakefield, believes Lodha Developers is financially comfortable. "Its debt-equity ratio would be around 1:1, whereas most developers have 1:3," says he. "If you have assets of Rs 10,000 crore, it does not matter even if you have debt of Rs 10,000 crore on your books." The Lodha Developers website attributes the "group's tremendous success" to "financial investments from the finest global investors including JP Morgan, and Deutsche Bank".
But at a time when about 45 per cent of Mumbai's under-construction properties are unsold, how is the Lodha group generating such strong cash flow? Lodha claims, and many in the industry agree, his projects in Dombivali and Kalyan on the outskirts of Mumbai where he is developing mid-income projects and in central Mumbai where he is building a mix of premium and mass housing projects are all doing brisk sales. "Lodha is a brilliant marketing story. It has tried everything, be it getting Aishwarya Rai or Trump into its project or renaming a place. It is doing higher numbers than before. Buyers believe in it, despite it completing only a few projects till date," says Kaushal. The Lodha Group is developing 35 million square feet of real estate with over 30 projects in and around Mumbai.
Kushal adds that Lodha's ability to buy clean titles, get approvals and launch projects is very good. For instance, within two months of buying the DLF plot in Mumbai, Lodha did a pre-launch of the property, which was considered way too fast for any realty project in the city.
According to sources in the real estate sector, Lodha does thorough planning on marketing, sales and development even before he bids for a project. "They buy the property, launch it and quickly exit, unlike many developers who sit on land thinking prices will go up," says the director of a Mumbai-based developer which competed for a South Mumbai property with Lodha Developers.
"They also prepare dummy brochures for the project if they like the piece of land on the block." Dutt of Cushman & Wakefield believes that except Lodha Developers none of the realty companies has built strong markets among non-resident Indians, or NRIS, in the overseas markets, and this has helped it in selling projects better than others. Lodha has set up offices in Dubai, London and other markets to tap NRI interest, consultants say. Dutt says what also helps is that Lodha has launched projects across price points - a good way to hedge the risks.
"The group has projects starting from Rs 3,000 to Rs 30,000 per square foot across Mumbai, which not many developers have," Dutt says. Thus, its projects in Mumbai run the spectrum from Napean Sea Road to Dombivali.
Of course, the Rs 3,000-crore question of the moment after the Mac Donald's acquisition is what will Lodha do with the London property? One report suggests that the company may convert it into super-luxury homes and sell them for a neat profit. Those who know Lodha won't be surprised but it remains to be seen if the London market is buoyant enough for Lodha to sell these homes.

Latest Realty News

IT units to pay property tax at residential rate
Dec 10, 2013
PUNE: After chief minister Prithviraj Chavan gave assurance of giving rebate in the property tax for Information Technology (IT) units, the standing committee of Pune Municipal Corporation on Monday approved a proposal of charging property tax from upcoming IT industries at residential rates and not commercial rates.
Flat buyers spared service tax on maintenance fee
Dec 10, 2013
MUMBAI: Home buyers have something to look forward to in an otherwise dull property market. The customs, excise and service tax appellate tribunal recently held that they will no longer have to pay service tax on the one-time maintenance charge (deposit) paid to builders at the time of booking a flat.
Investment in Pune property market remains rewarding
Dec 10, 2013
PUNE: What makes Pune such an attractive property investment destination despite the fact that Mumbai, India’s legendary real estate market par excellence, is right next door? A few years ago, the reasons for this were not as obvious as they are today.
Investors of Hirco Plc raise questions against erstwhile bosses
Dec 10, 2013
MUMBAI: Investors of Hirco Plc, a company listed on London's Stock Exchange's sub-market AIM, are raising serious questions against the firm's erstwhile chairman Niranjan Hiranandani and then CEO Priya Hiranandani-Vandrevala.
When and how to buy your dream home
Dec 09, 2013
MUMBAI: Buyers are faced with several dilemmas when they purchase a house. Here are the answers to some of the key doubts:Real estate, though a mainstream investment and probably a part of every financial portfolio, is also unique. It is the single largest financial commitment that most people make in their lifetimes. Buying a property also involves a lot of subjectivity and is not just a factor of the property's price or the interest rate on the home loan. Here are some questions you are likely
Proximity to Lohegaon airport a virtue
Dec 08, 2013
PUNE: Charoli (or Charholi) is an emerging and promising location near Pune's Lohegaon airport, being developed in response to the increasing demand for affordable, yet strategically located, homes. Like many other previously undiscovered and now well-developed entrants on Pune's real estate map, Charoli was previously an agrarian locality which, by virtue of large tracts of available land, has now been identified as a logical area for development expansion. Charoli has some very significant loc
Commercial property: Opening up to retail investors
Dec 07, 2013
MUMBAI: Buying an office or retail space is a huge investment, which is why commercial realty has been traditionally seen as an asset class that only institutional investors or high net worth individuals could invest in. That, however, is changing. Many retail investors are now getting into the office real estate game.
Pune residential market – Win-win situation for buyers
Dec 07, 2013
PUNE: Pune plays a critical role in the real estate sector of Maharashtra and the country at large. It continues to witness good traction as the market is still relatively affordable with new launches helping maintain the momentum. The demand for residential projects has increased tremendously driven primarily by the end-user segment. Real estate developers see considerable growth opportunities in the residential segment as the annual requirement of houses in Pune is estimated to remain in the r
Home away from home near Mumbai
Dec 06, 2013
MUMBAI: Driving out of the city on a weekend to the beautiful landscape in the western ghats within a 200-kms distance from Mumbai is now seen more than a weekend getaway. Given the plethora of options in housing available in the scenic spots nestled in the hills, people increasingly prefer the option of driving to their second homes and relaxing over the weekend. With the Konkan coastline with its verdant landscape and lush greenery on one side and the Arabian Sea on the other, a second home in
Destination development: First mover advantage
Dec 06, 2013
PUNE: Beyond the oft-repeated developers’ rhetoric ‘location, location and location’ as the USP of the project, lies the fact that today’s prime location was once a deserted area that most developers were not ready to bet on with the kind of huge investment that realty projects demand. It has not just been the huge investment involved but the infrastructure, or rather lack of it, which often made them play safe. Though, in some of the cases, the government authorities took the initiative to prov

Latest Realty News Of State

Realty Talk's