Large MNCs typically opt to divest their real estate holdings in key locations as a strategy to navigate financial difficulties.
In the current market scenario, real estate divestment serves as a viable method for larger corporations to alleviate their debts.
A significant number of Indian corporations and multinational companies have found themselves deep in debt, primarily due to sluggish market conditions and a recessionary economy. This downturn compels many Indian firms to divest their most valuable real estate assets.
Rising debts have become an urgent issue for these corporations, leaving them with little choice but to sell or lease off their prime properties. The high-interest rate environment further complicates their situations, as it restricts their ability to secure loans, necessitating alternative avenues for fundraising.
Many Indian companies urgently require cash to reduce their debts while simultaneously striving for stronger financial stability.
Without a doubt, divesting and monetizing real estate assets stands out as an effective strategy to raise substantial funds quickly. It is generally more straightforward to sell prime commercial or residential properties than to divest from non-core business interests.
Corporations are increasingly recognizing the impracticality of locking up enormous financial resources in property maintenance. Instead, those funds could be better utilized for business expansion initiatives. Notably, the demand for real estate assets remains high, a stark contrast to other commodities.
In a rather unfortunate instance, Vijay Mallya struggled to sell his debt-ridden airline, Kingfisher, but managed to find buyers for his real estate properties. He found that private equity firms were interested in purchasing his real estate assets.
Air India is another case; the airline has initiated plans to monetize its extensive real estate portfolio, engaging a global consulting firm to assist in this endeavor. The goal is to generate upwards of Rs.5000 Cr by leveraging its properties, especially those located in major urban hubs like Mumbai, Bangalore, and Delhi.
Public sector enterprises BSNL and MTNL are also moving forward, aiming to monetize their real estate assets. They've issued invitations to real estate consultants for bidding. BSNL, in particular, boasts properties valued in the thousands of crores across various Indian cities, while MTNL focuses primarily on Delhi and Mumbai.
It's important to note that the trend of divestment is not limited to government firms; the private sector is also actively participating. High-interest rates and a shortage of private equity funds have motivated many private businesses to sell off their real estate holdings.
For instance, Gammon India is in the process of reducing its debt by offloading some of its real estate assets. The firm anticipates that the liquidation of its properties will facilitate this financial maneuvering.
Recent reports from the Economic Times highlight that Citibank has sold numerous properties in prime Mumbai locations, including a high-profile 2,550 sq. ft. flat in Malabar Hill’s Palazzo that fetched an astonishing Rs.28 Cr.
Ambar Maheshwari from Jones Lang LaSalle India notes that many corporates tend to invest heavily in real estate during prosperous times due to its high demand and potential for appreciation. Conversely, during economic downturns, they sell these assets to recover from financial distress, a pattern he describes as commonplace.
The inherent value of these assets is significantly influenced by their prime locations and limited supply, which drives up demand for properties priced at Rs.1 lakh or more per sq. ft. In contrast, numerous newer projects struggle to attract interest due to their elevated prices and thus do not achieve ratings as high as those of prime location properties.