DLF to set up retail hub in Lower Parel

Firm sees little problem getting good returns from recent acquisition as it chalks out a retail development plan.

As DLF, Delhi's leading real estate developer, enters the Mumbai market, its rivals will be hoping for a false start.

DLF made the winning bid of Rs702 crore for National Textile Mills' 17.5 acre property in Lower Parel, but there is a general feeling that it may have overbid.

The second highest bid, by Parsvnath, was for just Rs 621 crore, while in a simultaneous auction for the 7.5 -acre Apollo Textile Mills property the highest bid, by Lodha Builders, was Rs180 crore.

However, doomsayers may be missing a key link between price and returns, pegged by company insiders at between 30 and 35 per cent.

"Everyone has looked at it only from a residential/commercial perspective, not retail. We are looking at a landmark retail development including a hotel. Once the hotel is thrown in, the FSI (floor space index, the maximum area on which construction can take place) increases from 1.33 to 2," says Ajay Khanna, executive director of DLF Retail Developers Ltd.

At the higher FSI, the cost of acquisition, by Khanna's estimates, falls from Rs 7,000 to Rs 5,000 a square foot.

That is in line with the price paid by Indiabulls for Jupiter Mills' land three months ago and just 25 per cent more than the Rs4,000 a square foot that ICICI paid for Glaxo's Worli property a year and a half ago, when property prices were less buoyant.

Besides, space is available at nearby Phoenix Mills for no less than Rs15,000 a square foot.

Thus, DLF sees little problem in getting its target return after investing about Rs400 crore in developing a 1.5 million square feet retail centre and a 300-400 room hotel at the site in two years.

"Our bid is not aggressive. It is futuristic, the most futuristic Mumbai has seen since Rai Bahadur Oberoi bought the present Oberoi hotel site 40 years ago," says Khanna.

A DLF insider sounded even more sanguine. "When you talk of large scale investments of Rs1,000-1,200 crore," he said, "and expect a profit of Rs400 crore or so, Rs50-60 crore is not very relevant." That would be a small premium for such a large single site, the likes of which are not easily available in Mumbai.