Wednesday, June 18, 2008

Unitech's Santacruz Project Scaled Down

If there is ample money and good valuation in the private sector, as opposed to the public markets, why has Unitech's Santacruz Koliwada project scaled down half to 1 million sq ft?

Sanjay Chandra, Unitech's managing director said in a CNBC interview, that there was better valuations for real estate in the private equity segment than public markets. This comes at a time when after much dithering, Lehman has agreed to invest Rs 750 crore in to Unitech's Santacruz Koliwada project in Mumbai.

What has gone unnoticed is that Unitech has cut back the size of the project by 50 percent. The original deal between Unitech, Lehman and then Deutsche Bank, was valued at Rs 2,000 crore for 2 million sq ft, for which Unitech had already invested Rs 500 crore. This works out to be Rs 10,000 per sq ft for land and construction. Lehman and Deutsche Bank were expected to get a minority stakes each in the project for bringing in together Rs 1500 crore.

Due to the conditions in the marketplace, as well as Lehman's own problems in the US, the project appears to have been scaled down to 1 million sq ft. In this Lehman has infused Rs 750 crore, the same amount of money it had committed for the original plan, but has taken in a 50% stake in the SPV. Deutsche Bank had earlier backed out of the deal.

So, why is Unitech not getting another private equity fund to finance the balance 1 million sq ft. Several stories are being fed in to the media that Lehman may invest $700 million in other projects by Unitech. This seems a bit contradictory.


Read the CNBC interview here

Video here

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Posted by Eclectic Investor at 4:57 PM 0 comments  

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Friday, May 30, 2008

Unitech Project Hinges on Lehman's Rs 1500 Crore

Unitech's 97-acre project in Santacruz, Mumbai, from which Deutsche Bank had exited , may have just one investor - Lehman Brothers, itself a beleagured financial entity, if US reports are to be believed. The success of this project now hangs balance on Rs 1,500 crore, which Lehman is expected to confirm by June 15.

Unitech's plans to convert the Santacruz Koliwada area in to a residential-cum-commercial hub may take a beating if Lehman Brothers refuses to put down this cash. Earlier, Deutsche Bank which was a co-investor, became disconcerted about the valuations and refused to be part of this deal Now, however, it is reported that Lehman will put in the Rs 1,500 crore by itself.

Sources in the Mumbai real estate market say that Unitech had purchased this land when the prices were at its peak, and when property prices were expected to scale right up to Mount Everest from the shores of the Arabian Sea. Unitech had paid up Rs 500 crore for bagging the project, but could not muster the balance Rs 1,500 crore. Thus, it had approached the two banks for an SPV arrangement, wherein it offered stake for cash. Deutsche Bank however backed out. [Read the story here]. Lehman may now negotiate a higher stake on revaluation of the project profitability. Besides, it may not fund Unitech's Worli project.


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KM

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IN PASSING

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


“When 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.”

“Last 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.

"Most 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.

The 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

Prachi 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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