Millennium Spire, a global real estate fund, entered India a year ago. For a start, the Singapore-domiciled fund (with an office in Delhi) has committed $50 million investment in four projects - three in the Delhi and National Capital Region and one in Coimbatore. But the firm’s second fund is looking to invest $1 billion in the sector if everything goes well, and most of it will be targeted at the “emerging middle class” - which may include affordable housing targeted at the end user (not for investors) and commercial space. VC Circle speaks to Ashish Bhalla (profile here) and Abhijeet Bhalla (profile here), both the Managing Directors of Millennium Spire India Management (they are brothers), about their India strategy and their views on the real estate investment industry. Excerpts:
There have been a rush of funds to the Indian real estate sector. Is the sector getting crowded?
Ashish: We entered India about a year ago. Millennium Spire I, (MSLI), launched in May 2007 with an initial corpus of $50 million, has set a good start. We have built a robust platform for our future investments. The funds from MSLI has been fully committed in four projects. We have a IT/ITES office project in Noida, an integrated township coming up in Coimbatore, an IT/ITES park in Manesar and a residential mixed use project in Gurgaon. All of which will at least take about 36-60 months for completion.
And the idea is not just to enter the Indian real estate market, we are driven by process and not deal availability. For our second fund, Millennium Spire II, again for real estate and infrastructure investments, we are envisaging a total minimum investment of $1 billion in a phased manner. We target projects that can create valuable assets for the end user.
So, what makes Millennium Spire different from other real estate investment funds?
Ashish: Our investment philosophy is to concentrate on core fundamentals. We will target lower entry cost cities that will benefit from Knowledge and industrial sector growth, and infrastructure by the government. It has to work in sync with an ecosystem of a civic, social and real estate infrastructure. But, the planning policies are myopic in India. There is no centralised, compiled database for land records available, a lack of which ultimately makes the cost of the land expensive. Because you just don’t know the availability of water, roads and other infrastructural facilities around that area. It needs to be professionalised.
A lot of real estate development that is happening today in India is primarily keeping in mind the investor and not the end user. We want to create asset bases, which give people their value for money. We aim to address the “middle of the pyramid” class of people. We are not looking at a super premium, mega luxury kind of accommodations, but targeting the emerging middle class, who looks for affordable, comfortable housing, and the value for his money in return.
What is Millennium Spire’s investment strategy?
Ashish: For our deal origination, we leverage in-house knowledge base and research for superior investment selection. The research support is provided from Miami and Singapore, and New Delhi focuses on Asian investment opportunities.
We partner selectively. We are not merely into the business of buying land banks or an expensive zone as passive financial investors but believe in partnering with the owners of the land, from mid to large size developers. The regional developers can leverage experience of an execution management team across the full investment life cycle – from land aggregation to project management of large scale projects to exit. They can take advantage of MSIM’s project management skills and professional relationships. This works more on the lines of a PE/VC model.
Then, we value add by way of our intelligent design, superior development management and professional relationships. We firmly believe that it is important to have physical control over the assets that you create. We manage directly the cost and quality, on time execution and operational financial management.
How has the Indian experience been till now?
Abhijeet: We see fantastic opportunities in terms of investment, but we are into a relatively different operating mode, more like investment advisors, with experienced project management skills as opposed to passive financial investors. There has been so much of talk of about the boom in the Indian real estate market, but then how much money has got actually raised and how much of it got deployed?
What is the expected rate of return and what has it been in your previous fund, Millenium Spire Limited- I?
Abhijeet: We are expecting a net IRR in excess of 25 per cent over the life of the funds. For MSLI, it was 38.5 per cent (as valued by third party). We are targeting consistent returns for the fund’s life.
How important is the Indian market for you? Are you targeting a long term investment?
Ashish: We are looking for a long and established stay here. We have bought an office and do not have a rented accommodation (laughs).
Are you also interested in commercial/retail development space?
Ashish: Yes, but not a standalone retail format. We are looking at some part of hospitality, some part of mixed use. Retail ventures operate in a different manner. It is governed more by walk-in-traffic and the demand cycles are much more mature. We want to have physical control over the assets that we have created. Again, the idea is to target it to the end consumer. For e.g, for our mixed use project in Gurgaon, we found from our research, specifically commissioned for women, that such places which are active for about 18 hours, how important it is to have hospitals, dentists around. Metro Links would be a major offering. We are looking at mass transit based developments.
What are the strategies and expansion plans ahead for India?
Abhijeet: We are not a Mauritius or Cyprus based fund, but Singapore domiciled and are tax efficient, credible and well regulated. We look forward to a pan–India investment strategy. Our project pipeline is in Delhi NCR, Punjab (Chandigarh), Uttaranchal (Dehradun), Rajasthan (Jaipur), Madhya Pradesh (Indore), Maharashtra (Nagpur), Goa, Andhra Pradesh (Hyderabad), Karnataka (Bangalore), Tamil Nadu (Chennai, Coimbatore,Tripur).
We have a strong operating history and the bigger purpose is definitely to leverage the India-South East Asia link. Keeping with our bandwidth and domain expertise, we will leverage opportunities in Indian real estate sector and utilize the potential of the funds in a planned manner.
Who are your investors?
Ashish: We have about close to 70 per cent per cent in Europe, US is about 25 per cent and the rest from other parts of the UK We also have significant investments from the Middle East.