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Corporate Nov 29, 2013

Lodha bets big on Central London, Canadian Embassy is just the first stop

By Sunainaa Chadha

Only luxury and only Central London - Mumbai's Lodha Group has arrived.

After tasting sweet success in Mumbai's luxury market, city-based Lodha Group is betting big on Central London and the acquisition of MacDonald House on Grosvenor Square for Rs 3,200 crore for from the Canadian government is just the first stop.

The Lodhas on Thursday night made their first ever acquisition abroad by signing a deal to buy the landmark MacDonald House in prime central London, which was serving as the High Commission for Canada. This prominent building bears the address of 1Grosvenor Square, which is touted as one of the most prestigious addresses in the world and per square feet cost in this expensive pin code is around 5,000 pounds. (Rs 5,10,000).

"This is without doubt one of the finest addresses in central London," said Tim Whitmey, director in Savills development team.

"London and United Kingdom offer significant opportunities... We plan to focus on Mumbai and London as our two main markets and serve London in the same manner that we serve Mumbai - with world class products intended to serve all key market segments," said Abhinandan Lodha, Deputy MD of Lodha Group.

MacDonald House in London.

MacDonald House in London.

Lodhas have already set up a London office and appointed Tyler Goodwin, former managing director of JP Morgan's Global Real Assets, as its London CEO. Lodha has already opened a 1000 square feet office in Chester Square in London and has already spent close to 300,000 pounds in starting operations in London. It will look to acquire more residential and commercial assets in Central London, where real estate prices have grown 6.8 percent in the last one year alone,fueled by demand from overseas buyers including Chinese investors.

The strategy issimilar to the one the company is using inMumbai: Focus on high-end super luxury projects, both residential and commercial.

London's property market has long benefited from the city's status as a global capital of finance and culture. Prices are stable, there is relatively strong demand from tenants, and foreign buyers like the stability of owning an asset denominated in Britain's currency.

According to a Global Wealth report by real estate consultancy firm Knight Frank, property accounts for the largest share of High Networth Individual (HNI) investment portfolio, averaging 22 percent globally. Moreover, the average billionaire owns four homes, with each one worth nearly $20 million.And foreign money iscertainlyinflating the price of London housing. Data from Savills, a big estate agent in the UK, shows that 38% of homes in central London were sold to foreigners last year.In Kensington and Chelsea, house prices are 37% higher than they were in 2008; in Westminster, they are 34% higher.

In London's most expensive districts, Russians and Arabs seem to be competing to pay the highest price for properties they rarely use.

And Lodha is looking to cash in on this demand. The group scouted properties in other investmenthotpotslike Singapore, Hong Kong and Dubai but ultimately settled on London for three reasons:It fulfilled thecriteriaof being aresilientmarket, a global city and a mature market. And let's not forget Britain'slight property-tax regime. Here council tax does not rise much with the price of home.

While the launch of the MacDonald project will not happen for the next six to nine months at least, construction would only begin after 12-15 months. While initial reports said Lodha is looking to buildluxury condominiums, Abhinandan Lodha clarified that the structure could be a mix of both high-end residential and commercial properties.

Deal details

Theacquisitionof MacDonald House is thefirst big purchase by an Indian company in London since the Sahara group's acquisition of Grosvenor House in 2010 for around Rs 3,400 crore. But while Sahara is bullish on hospitality, Lodha is very clear that it will only develop residential and commercial properties.

Macdonald House - a seven-storeyed building in Grosvenor Square, Mayfair - has previously housed the American Embassy in the city and subsequently the High Commission for Canada. The building was named after Sir John A Macdonald, Canada's first prime minister.

As of now Lodha has only paid 10 percent of the total deal amount, i.e. around Rs 300 crore and plans on paying the remaining amount before the end of March 2014. The deal was sealed at a conversion rate of Rs 102 for the pound. Consulting firm Knight Frank advised Lodha on the deal whilethe High Commission was advised by Savills UK.

The entire Rs 3,200 crore will be funded by sales from its Mumbai properties and internalaccruals. The company will not take on any debt to fund the deal. The Mumbai-based developer currently has net sales of around Rs 14, 500 crore in the last 18 months. With per square feet rate costing Rs 5.1 lakh in Grovensquare, Lodha sees an internal rate of return of around 20 percent on a four-year cycle and margins of 25-30 percent. The MacDonald Houseis a 0.67-acre property and hassaleableland of 150,000 sq ft.

The value of MacDonald House, if converted to residential use, is estimated at over 450 million.

This is Lodha's third major asset purchase in the last one year.

The company last year bought 17 acres in Mumbai from India's largest realty firm DLF for Rs 2,727 crore. It also acquired Washington House property from the US government on Altamount Road in Mumbai for Rs 375 crore.

Earlier this year, Lodha announced the launch of private landscape "The Park" as part of its luxury housing project in Worli developed over a 17.5-acre Mumbai Textile mill plot.

In 2010, Lodha Group announced the World One project, designed by the New York-based Pei Cobb Freed & Partners and furnished by Armani Casa; Lodha's Evoq at New Cuff Parade will be done by Philippe Starck for Yoo.

The group is currently developing pver 35 million square feet on prime Mumbai land.

by Sunainaa Chadha

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