A mail to Ascendas did not elicit any response. Sources said Proprium Capital, set up by former Morgan Stanley executives, is looking at such deals in Bengaluru wherein it will get into an agreement with the local developer to develop a 1 .5 million sq ft project. It is also exploring similar deals in other places, sources said.
Proprium did not respond to queries on the subject. Though sources said even Morgan Stanley Private Equity has done forward purchase deals, it could not be independently verified. Late last year, Xander Investment Management signed an agreement with Hyderabad developer Phoenix Group for office buildings covering an area of 4.5 million square feet in the financial district at Gachibowli.
According to sources, the Tata Realty-Actis platform is looking to do some agreements with developers in the country. However, Tata Realty did not repond to Business Standard’s queries.
“Through forward purchase, one can acquire Grade A properties and earn yields closer to development, which are generally higher instead of stabilised yields,” said Ramesh Nair, chief executive at JLL, a property consultant.
Nair said that since the realty market is so varied in terms of its rules, regulations and the development approach, forward purchase helps these entities to primarily shift the risk of land acquisition, approvals and delivery onto to local partners. Rituraj Verma, partner at Nisus Finance Services, said forward purchase is the safest way forward for foreign investors. “It puts the risk of aggregation of land, approvals, taxes, and leasing on the seller,” he said.
However, these kind of deals have their pitfalls. Rajesh Jaggi, managing partner, real estate, Everstone group, said both the parties do not share the risks and alignment is not there.
“Developers buy land, build a property and sell it. Investors have to take the risk of leasing. In between, costs go up which we have to bear,” he said.
Verma said the financial needs of the seller are often not taken care of and bridge capital is needed to finish the commitments to different stakeholders.
The stakeholders include land owners, government departments, and lessees. This (not taking care of the financial needs of the seller) may see many deals not getting completed.