The Indian Railways has floated tenders seeking interest from real estate developers for commercial development of 4.3 hectares of a prime land parcel in Bandra (east). The land, which will be given to successful bidders on a 45-year lease, is expected to fetch railways R2,500-3,000 crore, said sources in know of the development.
Railway Land Development Authority (RLDA) is undertaking the task of commercial exploitation of this land, which will have a floor space index (FSI) of 4.
The Maharashtra government had increased the FSI limit of this land from 2 to 4 in 2008. Of the additional FSI, nearly 60% of the proceeds will be utilised for funding the R5,300-crore Phase II of the Mumbai Urban Transport Project
(MUTP) by Mumbai Rail Vikas Corporation (MRVC).
MRVC is a public sector undertaking incorporated in 1999 and primarily carries out capacity augmentation works for the sub-urban railway system in the Greater Mumbai area.
Since the centrally located land abutting Western Express Highway has 16% area under coastal regulation zone (CRZ), the effective FSI on the plot will be 3.68, according to the bid document.
“This is a contiguous parcel of land in a prime location and should attract a lot of interest from developers. If executed well, this commercial development could be good competition to the financial centre of Bandra Kurla Complex (BKC),” says Sanjiv Chaudhary, director for valuation and advisory (western region), Colliers International, global real estate consultants.
However, being a new development and given the approval and development risks involved, the property may command a slightly low capital value and rentals initially as compared to BKC.
“The expected capital value should be in the range of R20,000 to R25,000 per square feet for this new development. Rentals would be around R200 per square feet per month,” he said. BKC capital values range between R26,000 per square feet to R35,000 per square feet for ready properties, while rentals range in R220- 350 per square feet per month.
The much-delayed process of putting the land for commercial development first started in 2008. However, the proposal was met with opposition from some citizens who disputed the ownership of the land, when RLDA first invited bids six years back. It was in 2012 that Maharashtra’s revenue department vacated the stay on the said land and directed the Mumbai suburban district collector to carry out measurement and demarcation.
“There were some legal issues that needed to be sorted even after that, which are over now and so the tenders for the land have been floated. We hope that the process goes on smoothly as a substantial amount of earning from development of this land will be utilised for the ongoing MUTP-Phase II,” says Rakesh Saksena, managing director, MRVC.
The bidder will be selected based on the amount quoted for payments to be made to RLDA as a combination of one or more of the following — lease premium, annual lease
rent and percentage share from project revenues.
The selected bidder shall deposit commitment security of R60 crore within 15 days of issue of ‘letter of demand’ from RLDA after opening of the financial bid. The project has to be implemented through a special purpose company (SPC) to be set up by the selected bidder.
The paid up and subscribed share capital of the SPC
at the time of signing of the lease agreement with RLDA should not be less than R175 crore.
The SPC created will also be required to open and operate an escrow account in which 75% of project revenue shall mandatory be set aside towards payment of outstanding installments of lease premium to RLDA.
In case of lease premium, the selected bidder will be required to pay 15% of the lease premium amount within 60 days from the date of issue of letter of acceptance (LOA) by RLDA. The total lease premium is to be paid within five years from the date of payment of the first installment. As for annual lease, rent shall be revised upwards by 15% every three years (compounded) during the entire term.
Grant Thornton is the consultant on the project and the bids will be evaluated by the consultant along with RLDA. The last date for submission of bids is June 3, 2014.