The market opportunity is large. We have been active participants for many years in the sector. We are also active participants in all kinds of retail that is closely linked to the logistics sector and gives us a ringside view in any case. The only difference now is we are doing it through a focused platform with a like-minded and trusted partner.
Some analysts say there is too much of commitment from private equity firms in warehousing sector. Do you agree?
Commitment is the easier side of the equation and, frankly, means nothing. It’s just a free option. Finding good deals that make sense and being able to execute on them is challenging. That’s when commitment gets converted to an actual investment. Sourcing while simultaneously taking on the responsibility of on-ground execution is a difficult skill set to find. Commitment without execution ability means deals don’t get done. Or the end result for the ones that do is not a good outcome for the capital partners. Of the commitments announced, how many have actually put dollars in the ground? India is all about execution and not about demand side challenges. And it’s still difficult to execute in India, that’s no secret. Most just get tired and move focus elsewhere as the return on time invested is not worth it for them.
Recently, Virtuous Retail South Asia bought a land parcel from Raymond. How are the land valuations now?
Some people always have something to say, especially when they cannot pony up the large amount of capital needed in difficult market conditions to actually buy the land and take the risk of building over 3 million sq ft, which requires real capability at the best of times. We believe well-located parcels of this scale with clean and established title are not easy to come by in any city, least of all the Mumbai region. We have already spent six months in designing and underwriting, the project before we bought the land. We are very comfortable with what we have paid. And a VR Flagship Center always re-defines the market. I am convinced it will raise the bar in Mumbai, too.
How do you look at the liquidity scenario in residential real estate? Do you think worst is yet to come?
Yes. The worst is still to come. Residential land prices have to fall substantially and developers have to clear inventory at market clearing prices before reasonable margins will be seen again. Without real margins, there cannot be any liquidity either through debt or through new equity.
How is Xander Finance going ahead with lending to developers?
On a very stringent case by case basis like we have done the past nine years, our standards remain the same. And we are happy to see that the standards of others are finally resetting (upwards) as well. But obviously, you have to be even more cautious given the general market and banking sentiment. Watch everything like a hawk at all times, retain enough liquidity to cover any liabilities over the medium term and have the humility to realise that when the entire sector is being buffeted by headwinds (mostly created by the players themselves), being extra conservative is not a bad thing at all.
Will you look at stressed assets in real estate?
We are always interested in looking at everything. We have been investing actively in India for the past 15 years — through market cycles, fads, the financial meltdown, economic upturns, and downturns. We understand investing in India. We also understand real estate. We have an institutional approach to corporate governance but an entrepreneurial ability to move quickly, pivot even quicker and always be on the leading edge of new strategies.
We created Virtuous Retail before retail real estate was fashionable, and have built a billion-dollar business there. We created Xander Finance in response to the need for credit in 2010, much before any other foreign investor, but we have been cautious in our underwriting and approach and battened down the hatches last year. We were never swayed by the valuations based on growth of books by dropping underwriting standards, and we are not swayed by everyone running scared at this point. If the risk we are underwriting makes sense for the return we expect, we will do it. But if we cannot underwrite particular types of risk because they are unknown (like untested regulatory law) we will wait. What’s the hurry? No one is going anywhere. You protect capital, keep your head down and work it out as needed.