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In a clear sign that the cost of financing for high-quality developers is falling, Pune-based Panchshil Realty recently raised its cheapest loan to finance the construction of an office park in Pune.
At 8.33 percent, the Rs 375 crore bond is the lowest cost of funds that Panchshil has raised for the construction of a commercial asset—Business Bay located off Airport Road in Pune. The seven-year paper raised, with Standard Chartered as the lead arranger, has also been assigned the highest credit rating for a real estate brand by ratings agency India Ratings.
“We have been getting rates close to this but this is the finest we have achieved,” said Paresh Bafna, joint CFO at Panchshil Realty.
The fund raising by Panchshil, which is building the Trump Tower in Pune and also owns Mumbai’s iconic Express Towers, underscores the resilience of rent yielding office parks in a developer’s portfolio. It operates 13.5 million square feet of office space in Pune and has another 2 million square feet under construction.
As residential sales slowed due to lack of affordability, despite falling borrowing costs, developers with a robust set of commercial assets have expanded across the country and have been able to finance the construction of new office parks that are, more often than not, leased to India’s ecommerce startups or software companies on long-term leases.
Developers like Bengaluru-based Embassy and RMZ Corp. have used such financing options to expand their office park portfolio.
The loans are typically raised on the lease rental discounting model where future rentals from the office parks will go to bond holders first. This allows the bond holder a steady cash flow from the project and has proved to be popular with overseas buyers due to the low interest rates in developed economies.
These rates are in stark contrast to the construction finance rates for residential projects that a developer like Panchshil Realty has to raise. These are raised at between 10.5-12 percent according to Bafna.
For now Panchshil plans to use the money to refinance its existing debt as well as use it for the construction of the Ritz Carlton, Pune, which is a part of the Business Bay office park. In addition, Panchshil also has an option to raise another Rs 100 crore.