Track2Realty-Agencies:

IDFC set up its real estate investments business in late 2010 to acquire majority ownership in leased and rent generating IT parks and SEZs located in major Indian office markets. The focus is on developments with high-quality tenants, which offer opportunity for stable yield as well as capital appreciation.

Over the last 12-18 months, real estate-focussed private equity (PE) funds have increasingly started looking at buying developed commercial assets for rental yields as well as capital appreciation in the long term. These investors typically look for properties already developed and commercial space rented out with leases of over 8-10 years.

Both the parties declined to comment to Track2Realty, but sources maintain IDFC’s real estate investments arm is buying the constructed and rented part of the SEZ. The transaction is reportedly awaiting approval from the environment and commerce ministry and is expected in a month. The money raised will be utilized for funding further development in the SEZ.

The first phase of the 2.6 million sq. ft Pune SEZ development, which has an integrated township, includes six buildings with a total built-up area of 1.4 million sq. ft.

Earlier, IDFC acquired an equity stake in a special purpose vehicle (SPV) called Galaxy Mercantile Ltd that owns a fully developed 1.36 million sq. ft IT park at Noida in the national capital region (NCR).

Track2Realty Exclusive: Print advertising, television commercials, outdoors and, of course, events….real estate has done all that it takes to reach to the customers. However, what matters the most has been neglected the most, observes Track2Realty. It is the social power of the buyers and the online reputation management of the developers that will be the game changer in the year ahead.   

Real estate sector has been exposed to a variety of branding solutions, some within the box and some outside it. No other industry has seen the advertising budget growing as fast, not even the FMCGs, as ASSOCHAM study suggests. The subdued consumer had also not been very vocal till recently, even in the wake of delay and default in the project since the prize on offer has been the dream appreciation of the property.

However, while the era of too fast appreciation is getting over and the power of the social media increasingly gaining ground, developers are suddenly facing the new challenge of dealing with the anti-brand movement in the cyberspace. This is a space that they never thought of investing in till now.

In Bangalore the buyers of a residential project, fed up with the delay and unresponsive behavior of the developer, came together to form a Group on Facebook. This was initially not noticed and then preferred to be ignored. However, as more and more number of aggrieved buyers started joining over the social networking site, the company opened the channel of communication with the buyers.

It followed up with over weeks of sometimes acrimonious conversations, escalating from customer care to senior executives of the company. Finally the Group creators on Facebook were sent legal notice.

It only added fuel to the fire. From there, it snowballed to become front page news in major newspapers and a raging thread on Facebook/Twitter. Thousands of people were soon accusing the developer of Big Brother tactics and all the realtors could do was listen to a conversation over which it had no control. In the end, the developer simply withdrew its case, and was forced toaddress the concerns of the aggrieved buyers.

The collective power of opinion over Facebook, Twitter and LinkedIn forced the developer to invite them for a discussion and take the corrective measures.

…..to be continued

Track2Realty:

Ganesh Vasudevan, CEO, IndiaProperty.com said, “We continuously strive to add more convenience to the time-consuming task of searching for properties for all consumers and in this case, the users of the just launched, Windows 8 too!  The IndiaProperty app which is very friendly with innovative features to enable property-seekers makes quicker and informed decisions while searching for properties to buy or rent.” He added “Our goal is to try and better the property search experience with smart and efficient technologies for users of all kinds of devices – be it iPhone, Android and now Windows 8.”

 “We are very excited with the momentum behind the Windows Store. The IndiaProperty app for Windows 8 packs in a punch with the amount of easily discoverable data it delivers to consumers,” said Amrish Goyal, Director – Windows Business Group, Microsoft Corporation India Pvt. Ltd.

With the Indiaproperty.com app, users can do a lot more than just searching for properties. The exclusive ‘Hot Locations’ feature in the website is now available in the app too. With this feature, the users can search for properties at the upcoming real estate destinations in every city, across India.

There is a separate tab featuring the most popular projects and builders in the city for the users’ benefits. One can also bookmark projects, save the searches, set property alert, find new properties, filter the search based on the user’s property requirements and instantly call the sellers directly from the app.

Shriram Properties is the privately held real estate unit of the $9-billion southern conglomerate Shriram Group. Ascendas is the leading  bidder for the 1.3 million sq ft special economic zone, which counts Accenture and Mahindra Satyam among others as tenants, and is part of a large integrated township located near the Chennai international airport.

The SEZ has potential to develop 3.2 million sq ft business space due to be completed in the next two years. Ascendas is expected to clinch a deal only for the already tenanted space and won’t have any right of first refusal for the development in the pipeline, said one of the sources mentioned earlier.

Shriram’s IT SEZ is part of a larger mixed use development on a 58 acre land, which it had bought from Standard Motors Factory in 2006.

Ascendas India Trust (a-iTrust), listed on the Singapore Stock Exchange, owns marquee technology parks in Bangalore, Chennai and Hyderabad. It has 92% stake in International Technology Park Bangalore (ITPB) and 89% stake in International Technology Park Chennai  (ITPC), with the state governments being minority investors in both the projects. a-iTrust, which builds and operates business parks, is the only listed Indian property fund for global investors.

The latest deal is part of the global investor interest in Indian business spaces catering to technology clients. Private equity firm Blackstone Group acquired 1.8 million sq ft technology SEZ of real estate developer DLF in Pune for Rs 810 crore last year.

It also struck a similar sized investment deal with Embassy Group for one of the largest IT SEZs in Bangalore. Private equity firms and global investment houses are allocating a part of their portfolio to risk free income yielding assets, such as IT business parks, which provide 9% to 12% assured returns besides providing capital value appreciation.

“Some PE funds with a real estate orientation are investing in pre-leased commercial projects pre-dominantly in IT Parks and SEZs in addition to residential projects. Though these developments yield lower returns than residential assets, they give some assurance of steady annual returns,” Jones Lang LaSalle India Managing Director for Corporate Finance Ambar Maheshwari told PTI in Mumbai.

Such investments can provide a buffer for funds, which do not produce the expected returns, he added. “These investments are happening selectively, because a lot of investors have burnt their fingers by investing in underdeveloped commercial properties. There is oversupply in this space and it is very difficult to ascertain if a project will be commercially viable or not. Investing in pre-leased commercial projects is a relatively low-risk route, which also provides a reasonable assurance on returns,” Maheshwari pointed out.

Taking this opportunity, international private equity funds like Blackstone, Baring Private Equity Partners and Xander have already invested in pre-leased assets such as IT parks and SEZs. While US-based firm Blackstone has invested in two properties each in Pune and Bangalore, Xander has bought stake in an IT park in Chennai, while Baring Private Equity Partners has invested RMZ Corp, which is the largest office space builder in the South.

Echoing similar views, DTZ CEO Anshul Jain said, “Though residential projects continue to be a lucrative market for PEs, the guarantee of assured returns on their capital deployed in pre-leased projects is attracting Pes to invest in such properties.”

According to statistics, the return on equity deployed in retail and commercial properties last year was USD 0.7 and USD 0.8 respectively per USD 1 investment. On the other hand, the return per dollar in residential properties was USD 1.3. However, in land deals the valuation received per dollar was around USD 5. Speaking about this growing trend, a senior official from Tata Realty and Infrastructure, who did not wished to be named, said, “Due to delay in project approvals, high land and construction costs, the risks involved in investing in residential and other development projects is high, as they may fail to yield the average expected return of 25 percent. “Therefore, PE funds are now looking at commercial and retail properties for investment though the returns are low.”

Although these projects churn out returns which are a tad lower than the conventional residential projects, they essentially provide annuity incomes for investors, he added.

By: Ravi Sinha

Track2Realty Exclusive

The government has also given more time to as many as 37 Special Economic Zone developers, including Navi Mumbai SEZ, DLF Commercial Developers and Tata Consultancy Services, to execute their projects. Five SEZ developers were allowed to surrender their projects as well. But the mounting criticism is now forcing the government to eject non-serious players from SEZ.

The non-execution and media criticism hasforced the government to rethink its strategy about developers sitting idle on the approvals. It expects the developers to either start work on the ground faster or surrender their applications and apply afresh when they are ready.

The Commerce Ministry will soon come out with a discussion paper on the Special Economic Zones in the backdrop of a large number of SEZs remaining only on paper and not getting operationalised.

Besides, it is only in a few states like Andhra Pradesh, Tamil Nadu, Haryana and Rajasthan where the tax-free enclaves have come up. The Ministry has also called for suggestions from all stakeholders to comprehensively address the policy framework and operational issues of SEZs.

The lack of economic activity in most Special Economic Zones has also led to the suspicion that many promoters were incapable of attracting economic production units to their SEZs and are merely betting on them as real estate assets and relying on loopholes in the law to realise their value at a later date.

This suspicion is only reinforced by the number of real estate developers in the fray who have been advertising SEZs as their ‘crown jewels’ and collecting enormous sums from the market in public issues of shares.

However, instead of taking any corrective recourse to make their SEZs become an economic hub, there are developers who shrug off their responsibility and blame the Government policy for the failure to take off SEZ project. Even after being allowed to stake sell, and more time to developers, including Raheja Developers, they are still crying foul.

In an email query to Raheja Developers by Track2Realty, Manoj Goyal, Sr VP, Raheja Developers shot back, “There is no delay from our side. The delay is mainly due to delay in clearance of master plan and environment clearance. We do not agree that Government is giving top priority to SEZ. We have to approach all individual authorities whether State or Central for approvals. The environment clearance hassame long drawn processes as applicable to other projects. The approval of Master Plan is pending since more than two years. You would now understand how a developer could develop such a big project without such approval.”

……to be continued

2^nd of the series

Track2Realty Exclusive

Realtors who are in the business of developing SME clusters believe in recent years, the metro cities have also seen a good increase in SMEs, which have catapulted themselves into mid- to large sizes within 3 to four years. Most of the banking and finance companies started small and have grown only in the last six to seven years, which is a revelation in itself. Some well-known IT companies have grown in size only recently.

India has more than 5000 mid- sized companies and at least more than half started their businesses in the metro cities. So SMEs being only in tier II and tier III is a myth. The idea is to offer office spaces at the right locations and offer the right mix of floor spaces and amenities.

“It is misconception that SMEs are only in tier II and tier III cities where land is less. The SMEs are also exists in the Metros like Mumbai. The India Growth story is the answer to the emerging demand for the SMEs who are now looking for a well equipped office. Gone are the days, when the SMEs were operating their businesses from the office spaces where they did not have basic amenities such as water, rest rooms. Today, the lifestyle has undergone a massive change in India, and Metro like Mumbai tops among any other city for offering great ambience at par with global commercial properties,” says Mayur Shah.

Madhusudan Thakur, Regional Vice-President, South Asia, Regus believes developers will always go where the demand is, and if there is demand in metro cities that is where they will go. It is also important to remember that SMEs also want to be in top locations, and if there is a business case for them to invest more in being in that location then they will be willing to do so.

“The most important element is to understand what SMEs need, and this cannot be done overnight. What SMEs need is flexibility, the agility to work wherever and whenever they need, and pricing points to suit. That is why we offer a whole range of solutions, from serviced offices to virtual offices and business world, our membership programme that gives businesspeople access to our professional facilities at 1100 location worldwide, all at a fraction of the cost of a traditional leasing approach,” says Thakur.

…..to be continued

This is followed by the market overview section that gives an insight into the facilities management services market in India, its market size and growth, along with the split between organized and unorganized market. Low organized penetration of facilities management services in India leaves huge potential for players to develop this market. Geographic distribution and region wise market split of facilities management services has been provided. The organised market is mostly concentrated in and around metros and big cities while the unorganized market covers the facilities management requirements in tier I and tier II cities. The section also includes the facility management services supply chain consisting of different types of suppliers with varied service offerings. Additionally, an analysis of Porter’s Five Forces provides an insight into the competitive intensity and attractiveness of the market.

An analysis of the drivers and challenges explains the factors leading to the growth of the market including boom in real estate, rise in infrastructural development, growth in retail sector, growth of hospitality sector and improving healthcare scenario. The key challenges identified are shortage of manpower and large unorganized segment.

Key trends in the market have also been analysed which includes evolving project management and general contracting services, development of facilities management training and education, and investments and M&A activity in the facilities management sector.

The competition section provides an overview of the competitive landscape in the market and includes a detailed profile of the major players. A bubble chart for the private players, depicting their relative positions in the market with respect to their total income, net profit/loss and total assets is included. This section also includes a list of products and services, key people, financial snapshot, key ratios and key recent developments for all companies, along with key business segments and key geographic segments for public companies. The report concludes with a section on strategic recommendations which comprises of an analysis of the growth strategies of the facilities management services market in India.

Debt ridden DLF owns a 67% stake in DLF Ackruti Info Parks Pune, the joint venture company for the IT SEZ. Hubtown Ltd (Erstwhile Ackruti City) owns the rest.

Blackstone is acquiring 100% stake in the company, paying DLF around Rs.540 crore for its stake and Hubtown a little over Rs.260 crore.

The partners will receive an aggregate Rs.810 crore from “an entity controlled by a realty fund affiliated with Blackstone Group, BRE/Mauritius Investments II,” DLF informed the exchanges.

DLF plans to use the entire cash flow to retire debt. “The entire value received from the sale will go for debt reduction. Till 2013, we are planning to cut debt worth Rs.6,000 crore. We are looking at monetising our non-core assets for the same. Aman Resorts is on the block for the next quarter,” said Rajeev Talwar, Group Executive Director, DLF Ltd.

Officials from Hubtown could not be reached for comment.
DLF’s total debt is at overRs.22,000 crore, which, according to company officials, would be repaid through a mix of cash flows and sale of non-core assets.

Among the other assets the company has put on the block is Noida IT Park.

Speculation is rife about the company’s only land parcel in Mumbai being on the block too, though company officials maintain it will not be sold.

DLF has already received the first tranche of payment from IDFC for its Noida IT park project this month. It holds 71% in Galaxy Mercantile, the joint venture formed for the project, which IDFC is in the process of acquiring.

Early this month, DLF bought out an additional 26% from joint venture partner Hilton International in DLF Hotels and Hospitality Ltd for an estimated Rs.120 crore, raising its holding to 100%. Company officials had earlier hinted that the stake buy was to consolidate and then sell the entire asset to another player.
Analysts, however, do not seem impressed by the asset sales.

“The company’s cash-flows have been negative this quarter. In addition, there is a cash outflow towards its stake buyback in the Hilton joint venture. I expect no major effect on the debt side —- no further upside in terms of further debt-based fundraising and even a marginal decrease of close to Rs.100-200 crore worth of debt retirement,” an analyst from a foreign research firm said on the condition of anonymity.