Nitesh Shetty, chairman and managing director of Bengaluru-based real estate firm Nitesh Estates.
Nitesh Shetty, chairman and managing director of Bengaluru-based real estate firm Nitesh Estates.

Nitesh Estates to raise 1,300 crore for commercial office portfolio

  • Nitesh Estates will raise 800 crore as equity and partner a foreign investor primarily to build a commercial office platform, says CMD
  • Nitesh Estates also plans to raise up to 500 crore of structured debt for 3-4 residential projects, which will be converted into offices

Bengaluru: Nitesh Estates Ltd plans to raise about 1,300 crore to build a commercial office portfolio even as it mulls exiting the residential business, the company’s top executive said. The Bengaluru-based developer will raise 800 crore as equity and partner a foreign investor primarily to build a commercial office platform, chairman and managing director Nitesh Shetty said in an interview. He said the company has mandated Industrial and Commercial Bank of China (ICBC) for the same.

Nitesh Estates also plans to raise up to 500 crore of mezzanine capital or structured debt for three to four residential projects, which will be eventually converted into offices.

Nitesh Estates has primarily been a premium residential developer, but given the slowdown in this segment and the several roadblocks faced by the sector, its focus is to finish under-construction projects, pare debt and then, look at rent-generating assets.

The developer also plans to sell or exit a few land parcels, including those it owns as well as under joint development agreements to raise another 400 crore, he said, adding bulk of the proceeds will be used to trim debt and the rest to complete ongoing projects and other exit formalities.

“...Our objective first is to complete our seven residential projects and finish our consumer commitment and exit the residential space. Along with this, our senior team is focusing on the shift to rental assets and in the next two years, come out strongly with our pipeline and build a platform with a global institution," Shetty said.

The commercial real estate platform, with rent yielding assets, will be led by office projects but will also have data centres and warehousing projects. The developer will bring in a few of its land parcels as equity.

Last year, Nitesh Estates was in talks with China’s Fosun Group to raise about 800 crore through a 51% stake sale in the company, but a deal was held up due to tightening of norms for outbound investment by the Chinese government in hotels, real estate among others. In a bid to clean up its balance sheet and deleverage, the firm in March sold the Plaza Centre Mall in Pune comprising one million sq. ft, to Era Realty Pvt. Ltd, part of ABIL Group. It also sold a 21,000 sq. ft plot for 55 crore in Bengaluru and repaid 40 crore to HDFC Ltd. Nitesh Estates, which had a net debt of 1,500 crore as of 31 December, cut it by around 450 crore through these two deals earlier this year. It plans to reduce another 250 crore or so.

The growth in office space is despite a sustained slowdown in the residential sector where several realty companies are saddled with unsold apartments. This has led a number of developers to shift towards office projects although the bulk of the office sector is still concentrated with a few top developers and investors.

“India’s commercial office market is on an upswing and given the kind of absorption of office space last few years, we are bullish about the asset class and expect it to see continued growth. For commercial real estate, it is important to have strong financial support from institutional investors," said Ram Chandnani, managing director, advisory and transaction services, India at CBRE South Asia.

Office space absorption touched nearly 48 million sq ft across top cities in 2018, according to CBRE estimates, which expects the momentum to continue.

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