Sunday, May 25, 2008

Barclays Bank Pays Ludicrous Rent for Worli Office

Barclays Bank, a major global financial services provider, and Britain’s third-largest bank, has done a ludicrous rental deal for office space in Mumbai, where it has ended up agreeing to pay Rs 1.08 crore per month for a 15,000 sq ft office space.

In the same quarter, the financial institution saw its Q1 profits fall, suffering a 1.0 billion-pound (1.25 billion-euro, 1.95 billion-dollar) hit from the global credit crunch. Earlier, the UK bank had announced £1.7 billion ($3.3 billion) in new write-downs amid speculation that it was preparing for a rights issue, to strengthen its capital position.

Yet, the same bank has gone ahead and closed a ludicrous lease deal in Worli, Mumbai, where it is said to have paid Rs 725 per sq ft for 15,000 sq ft office space in an apartment block called Ceejay House (pictured left). This, at a time, when Citibank, in a bid to resurrect itself from the subprime crisis, is selling off global properties, including ones in Mumbai's poshest areas.

This deal is particularly intriguing, considering it is unimaginable that a bank like Barclays would pay such a high rate, which even seasonsed real estate professionals in Mumbai are calling a "freak deal".

The devil of course would appear in the details of the deal, not much of which has been reported. For one, Barclays already occupies 60,000 sq ft, in the same building, which it leased or purchased (we are not sure) in 2006. Interestingly, we do not know what rate Barclays has paid for the earlier deal, and whether the current deal includes the renewal of the older property. Property deals can include many things that do not get recorded in the lease document.

One of my imaginative scenarios are as follows:

  • Pay Rs 725 per sq ft for 15,000 sq ft but get the 60,000 sq ft. space for free.
  • Pay Rs 725 per sq ft for 5 years and get another 5 years free.
These are shenanigans of the real estate lobby to create an illusion that real estate is a great investment. As an aside, Ceejay House is adjacent to Poonam Chambers, occupied by NCP minister and aviation minister, Praful Patel, whose duplex and swimming pool spans over 35,000 square feet.

This story appeared in the Mumbai edition of The Times of India, dated March 24, 2008. Surprisingly it was not found online on the web site, at the time of writing this post.

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Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book

everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror


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