STANCHART 700+ CRORE PURCHASE HERALDS REVITALIZATION OF CORPORATE ASSET OWNERSHIP IN MUMBAI

Asset ownership on the balance sheet likely to come in vogue again

Mumbai, November 16, 2008 – While the office space leasing market in Mumbai was visibly cooling off in 2008, the Standard Chartered Bank’s purchase in an upcoming building in the financial district of Bandra Kurla Complex has opened a new area for transactions. Asset ownership by corporate entities may come back in style, as the opportunities to invest within businesses themselves offer lesser and reducing returns.

The purchase by SCB in Mumbai’s BKC last week also indicates that after a protracted second-guessing of potential locations for financial institutions, the centrally located Bandra-Kurla Complex is finally emerging as the preferred location.

“The outright purchase of approximately 250,000 square feet of ultra-prime commercial space for a staggering transaction amount of over Rs. 700 crore indicates a definitive preference for the location by the bank,” states Aniruddh Wahal, who concluded this transaction in his capacity as Head of Corporate Capital Markets, Jones Lang LaSalle Meghraj. “Considering that Standard Chartered is a leading foreign bank, the trend will doubtlessly catalyze renewed interest by other key occupiers in Mumbai.”

Earlier this year, Citibank decided retain its corporate presence in BKC, and looking at the number of new confirmed and potential occupants - which include UOB, SBI Cap, Morgan Stanley, UBS, Daiwa, Nomura, Blue River and ANZ Cap - it is apparent that more transactional banking business will be conducted out of BKC. This was not the case till now, and also a major shortcoming of the location.

Further, Aniruddh emphasizes, “Mumbai continues to value development quality and high technology enablement over location or developer brand names alone. This transaction underscores this fact, considering that the developer is not an established brand in the office market yet.

“This transaction links closely to the economic changes taking place globally,” says Aniruddh. “Asset ownership on the balance sheet is likely to come in vogue again, pushed by reducing returns on most business and expansions, and pulled by cooling real estate prices. In Mumbai, a preference of purchase over lease of assets is further going to be aided by the fact that almost 90% of asset value goes to land (appreciating) while only 10% is attributable to construction cost of the building (a depreciating number).”

“Corporate entities have, over the past decade and half, been cautious about owning assets, given the demand made on capital to feed the tremendous pace of business growth in this era. As growth comes to an end, asset ownership is likely to be a good instrument for parking liquidity in a inflationary, depreciating rupee economy.”