Comments on: Indian Real Estate Funds http://6ampacific.com/2006/02/12/indian-real-estate-funds/ Basab Pradhan's weblog about business and life in a 'flat world'. 6 AM Pacific is the best time for a global conference call. Thu, 20 Nov 2008 23:48:16 +0000 http://wordpress.org/?v=2.6.3 By: BEEKAY http://6ampacific.com/2006/02/12/indian-real-estate-funds/#comment-6485 BEEKAY Sat, 02 Jun 2007 21:49:52 +0000 http://sixampacific.com/?p=5#comment-6485 There are several issues related to Indian Real Estate Investments. Examples: 1) adequacy of information about financial versus "entrpreneurial" equity ("sweat" would hardly be the right word) contributed by local ( India) developers; 2)the availability, terms, and use of mezzanine (construction) financing and how it affects returns calculation; 3)the "two sets of books" accounting ( anecdotal evidence suggests two sets of books still widely prevalent- even on the part of some large developers); I believe mortgage based financing and "flips" offers the most conservative way for NRI's to invest (passive) until suitable ADR's become available. There are several issues related to Indian Real Estate Investments. Examples:
1) adequacy of information about financial versus “entrpreneurial” equity (”sweat” would hardly be the right word) contributed by local ( India) developers;
2)the availability, terms, and use of mezzanine (construction) financing and how it affects returns calculation;
3)the “two sets of books” accounting ( anecdotal evidence suggests two sets of books still widely prevalent- even on the part of some large developers);
I believe mortgage based financing and “flips” offers the most conservative way for NRI’s to invest (passive) until suitable ADR’s become available.

]]> By: manish jain http://6ampacific.com/2006/02/12/indian-real-estate-funds/#comment-5995 manish jain Thu, 19 Apr 2007 10:50:07 +0000 http://sixampacific.com/?p=5#comment-5995 your points are valid, but in a crazy bubble market...anything goes and people are able to charge some crazy fees. your points are valid, but in a crazy bubble market…anything goes and people are able to charge some crazy fees.

]]> By: Basab Pradhan http://6ampacific.com/2006/02/12/indian-real-estate-funds/#comment-4 Basab Pradhan Sun, 19 Mar 2006 04:17:55 +0000 http://sixampacific.com/?p=5#comment-4 Srini, your points are well taken. But I will still maintain that the 2 and 20 fee structure is more a function of supernormal returns in a hot real estate market rather than what is deserved by the investment management skills required by this kind of asset class. You may be right that the risks today in India in real estate are many, but that is exactly my point - that the government must work towards taking much of this risk away so that what is left is largely market risk. I also don't like the fact that approval risk and regulatory risk are important factors. The temptation for a fund to bend the rules is far too much. Srini, your points are well taken. But I will still maintain that the 2 and 20 fee structure is more a function of supernormal returns in a hot real estate market rather than what is deserved by the investment management skills required by this kind of asset class. You may be right that the risks today in India in real estate are many, but that is exactly my point - that the government must work towards taking much of this risk away so that what is left is largely market risk. I also don’t like the fact that approval risk and regulatory risk are important factors. The temptation for a fund to bend the rules is far too much.

]]> By: Sriniwasan http://6ampacific.com/2006/02/12/indian-real-estate-funds/#comment-3 Sriniwasan Wed, 15 Mar 2006 12:05:09 +0000 http://sixampacific.com/?p=5#comment-3 Hi Basak, I came across your views on Indian Real Estate Funds and thought, I should attempt some answers to your questions. 1. First off REITs in general are mutual fund type units which have mature income producing assets (Rented properties) and are manadted to distribute 90% of OPerating income as dividend. They are tax free if they do so and therefore tend to trade on the basis of yield. In India, organised Real estate portfoli doesnt exist. If you know Nariman Pt, the properties are held by multitude of investors and and dont lend themselves to redevelopment. Its only now that quality properties occupied by quality tenants (IT and BPO MNCs) are emerging as tenants which lend itself to REIt structure and even here most investment opportunity is towards development of the property which means you have development risk, approval risk, leasing risk and (In India - a huge regulatory Risk). The above is true of most classes of real estate - be it Retail, Hospitality or healthcare. All of these are development risk assets. The developer industry is not organised and corp governance is still alein to the developers. Hence Highre risk must translate to highre rewards whic is what these funds are about. the 2 and 20 structure is for targetting returns in early 20s. REIts well, then you are talking about 6% returns!! I am happy to chat in detail. Hi Basak,
I came across your views on Indian Real Estate Funds and thought, I should attempt some answers to your questions.

1. First off REITs in general are mutual fund type units which have mature income producing assets (Rented properties) and are manadted to distribute 90% of OPerating income as dividend. They are tax free if they do so and therefore tend to trade on the basis of yield.

In India, organised Real estate portfoli doesnt exist. If you know Nariman Pt, the properties are held by multitude of investors and and dont lend themselves to redevelopment. Its only now that quality properties occupied by quality tenants (IT and BPO MNCs) are emerging as tenants which lend itself to REIt structure and even here most investment opportunity is towards development of the property which means you have development risk, approval risk, leasing risk and (In India - a huge regulatory Risk).

The above is true of most classes of real estate - be it Retail, Hospitality or healthcare. All of these are development risk assets. The developer industry is not organised and corp governance is still alein to the developers.

Hence Highre risk must translate to highre rewards whic is what these funds are about. the 2 and 20 structure is for targetting returns in early 20s.

REIts well, then you are talking about 6% returns!!

I am happy to chat in detail.

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