SESSION REPORTS - Global Real Estate Institute

TopicTimeVenueAttended by:Commercial Real Estate: Is there money to be made?12:15 pm to 13:15 pmCrystal Room North1) Ameet Hariani2) Sanjoy Paul3) Mitesh Agrawal4) Mayur ShahMr. Mayur Shah opened the discussion with his observation of the commercial asset space that, though in the currenttime there is an oversupply, in the near future analysts predict strong shortage of quality commercial space. Also,developers should keep in mind that the current oversupply should not lead to a situation where price is lesser thanreplacement cost. The typical investment cycle of 3.5 years, in combination with the current mismatch situation, holdsarbitrage opportunity.Mr. Ameet Hariani guided the ‚Yc_f^ vs Ajjr_]c[tcih‛ discussion. Investors usually seek IRR measures (10%-11%yield, 3-4 times annual appreciation, 16%-18% unlevered IRR). The expected appreciation usually makes up for the highcost of capital. Regulation encourages investments in development phase of the projects as compared to Investorpreference for investing in ready asset stage.Mr. Paul categorised residential projects as cashflow projects and commercial projects as annuity projects. Eachcommercial project requires a stabilisation period. Banks, while lending to the realty sector should consider thesetimelines to make appropriate projections. This will allow sustainability to the sector.“Is the India Story losing flavour?”The risks faced by the Real Estate sector in the developed markets are overflowing to India. Also, FDI holds additionalcurrency risks. Therefore foreign funds feel more secure in home locations. Also enforceability of contracts remains anissue in India. However this is not an appropriate indication of the confidence in the Indian markets. Foreign investorsinvesting in India seek exorbitant returns for their exposure to the above risks and will not invest if their expectations arenot met.With interest rates peaking, investors are on the look-out for projects with high yields, as the rates decline lower yieldassets also show value. Restructuring provides cash-out opportunity. In the residential space, the consumer is the ultimatebenefactor as he gains full value from the appreciation of the asset. In the commercial space, SMEs show significantopportunity as this is an unexploited sector. With appropriate pricing strategy and a sizable ticket for a quality product,this sub-sector of commercial realty has good value. Unlike IT office space that is susceptible to global economic shocks,SME holds opportunity that is more stable in nature. However, the volumes are generated typically in the IT product.In conclusion, micromanagement of the projects is key. While most attention is diverted to the development andexecution phase, the success in the commercial space lies in good operation management.Page 17 / 23