Jitu Virwani, chairman of Embassy Group and a billionaire property developer, has recently filed intent papers for India’s first real estate investment trust with his partner Blackstone and recently bought a stake in MAC Charles which owned Le Meridien Bengaluru along with complete management and control of the firm. In an interview, Virwani discusses his plans with Raghavendra Kamath.
How do you look at real estate investment trust (REIT) as a product and how do you expect retail investors to respond to a REIT?
Embassy has been evaluating various capital raising options from time to time, in line with its growth objectives. One of the options being evaluated by Embassy Property Developers is to consider a listing of select assets through the real estate investment trust (REIT) route, subject to receipt of requisite approvals, market conditions and other considerations. In this regard, EPDPL (Embassy Property Developments Private Limited) has filed an application before the Securities and Exchange Board of India for an in-principle approval to register a REIT in India.
Embassy is focussed on hotels as a relevant component of our mixed use, integrated development offering synergies between offices, hotels, conferencing, retail, F&B (food and beverage) — all provide an integrated solution for our customers. The sector is also likely to be highly influenced by technology. India’s hospitality sector is booming with a high demand for well-appointed, luxury business hotels in Bengaluru. Bengaluru has doubled its supply in the last five years and has a growth of six per cent in the past 12 months. Despite the increase in supply in the city (six per cent), Bengaluru has grown both occupancy and ADR (average daily rate) and witnessed 15 per cent growth in Revpar (revenue per available room) in 2015-16 over 2014-15, the highest in the country, reflecting the strong demand fundamentals in the city.
Could you say how much will you invest in hotels and what are your plans? Do you see an opportunity to float a REIT or IPO for hotels?
Embassy Group has forayed into the hospitality business, which includes the partnership with Hilton as well as the Four Seasons Branded Residences. Our strategy is to break through the clutter in the hospitality sector and differentiating ourselves from other realty players by enhancing the value of our existing business parks. We are looking at providing F&B hubs and hotels across all business parks going forward. We also had a lot of learnings from our first project at Embassy Golf Links where we found that existing tenants and park users are looking for hotels at two price points. In addition to this, there is a need for a larger banqueting and convention space and we are addressing these needs in our second project with Hilton.
It is too early to comment on the possibility of a hospitality REIT or IPO. We are currently working on expanding our hospitality portfolio and being synonymous with hotels that provide best-in-class facilities and legendary service.
When do you expect the residential market to pick up?
A few developers were residential-centric and may have gone overboard, launching quite a few large projects and creating a bit of a glut. Slowly but surely there’s been an improvement. Today, India is one of the fastest growing countries for high net worth individuals (HNIs) and their investment portfolio totals 40 per cent in the realty market. Luxury projects are being absorbed very quickly with HNIs investing in new concepts such as luxury branded residences and integrated planned townships. I believe that plotted developments supported by well-planned infrastructure in promising suburban locations makes for good investments too — they are quicker to sell and generate strong cash flows for the seller while giving buyers a lower upfront outflow with the flexibility to build later according to their individual taste, and to reap the benefits of capital gains in the interim.
What are your development plans for FY 2017 and FY 2018?
We are continuing to grow in all our business verticals. In the commercial office sector, we expect the IT/ITeS (information technology enabled services) sector will continue to lead the market when it comes to leased spaces, followed by the BFSI (banking, financial services and insurance) and consulting sectors. The growth in e-commerce has caused a spike in demand for large warehousing and distribution spaces resulting in reducing vacancies and increasing rents.
Further, development in infrastructure across and within cities will ensure better connectivity, transportation and basic amenities. Again, the pressure on our city infrastructure is significant, and we are working with authorities on public-private partnerships to enhance the urban environment for all citizens. In 2017, the market is expecting increases in both rental and capital value.
How’s your venture with Warbug Pincus progressing?
In 2015, Embassy Group partnered with Warburg Pincus to form a joint venture called Embassy Industrial Parks. We partnered with them for a joint investment of USD 250 million which will help the entity with land acquisition and construction. We are working closely with Warburg Pincus and leveraging their successful global experience in the industrial real estate asset class. I would like to say that the road ahead looks very promising and we are poised for immense consolidation and growth over the next year as we build industrial and warehousing spaces for the new world. We are committed to bringing quality Grade A industrial, light manufacturing and warehousing spaces in close proximity to leading consumer and industrial centres across India. These parks will be fully master planned to specifically cater to the industrial and logistics traffic movements and will boast a host of special amenities such as truck parking, canteens, rest areas, dormitories, business centres etc. This will ensure the park becomes a self-sustaining business environment.
How do you look at real estate investment trust (REIT) as a product and how do you expect retail investors to respond to a REIT?
Embassy has been evaluating various capital raising options from time to time, in line with its growth objectives. One of the options being evaluated by Embassy Property Developers is to consider a listing of select assets through the real estate investment trust (REIT) route, subject to receipt of requisite approvals, market conditions and other considerations. In this regard, EPDPL (Embassy Property Developments Private Limited) has filed an application before the Securities and Exchange Board of India for an in-principle approval to register a REIT in India.
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You are betting big on hotels. What is the rationale behind that?
Embassy is focussed on hotels as a relevant component of our mixed use, integrated development offering synergies between offices, hotels, conferencing, retail, F&B (food and beverage) — all provide an integrated solution for our customers. The sector is also likely to be highly influenced by technology. India’s hospitality sector is booming with a high demand for well-appointed, luxury business hotels in Bengaluru. Bengaluru has doubled its supply in the last five years and has a growth of six per cent in the past 12 months. Despite the increase in supply in the city (six per cent), Bengaluru has grown both occupancy and ADR (average daily rate) and witnessed 15 per cent growth in Revpar (revenue per available room) in 2015-16 over 2014-15, the highest in the country, reflecting the strong demand fundamentals in the city.
Could you say how much will you invest in hotels and what are your plans? Do you see an opportunity to float a REIT or IPO for hotels?
Embassy Group has forayed into the hospitality business, which includes the partnership with Hilton as well as the Four Seasons Branded Residences. Our strategy is to break through the clutter in the hospitality sector and differentiating ourselves from other realty players by enhancing the value of our existing business parks. We are looking at providing F&B hubs and hotels across all business parks going forward. We also had a lot of learnings from our first project at Embassy Golf Links where we found that existing tenants and park users are looking for hotels at two price points. In addition to this, there is a need for a larger banqueting and convention space and we are addressing these needs in our second project with Hilton.
It is too early to comment on the possibility of a hospitality REIT or IPO. We are currently working on expanding our hospitality portfolio and being synonymous with hotels that provide best-in-class facilities and legendary service.
When do you expect the residential market to pick up?
A few developers were residential-centric and may have gone overboard, launching quite a few large projects and creating a bit of a glut. Slowly but surely there’s been an improvement. Today, India is one of the fastest growing countries for high net worth individuals (HNIs) and their investment portfolio totals 40 per cent in the realty market. Luxury projects are being absorbed very quickly with HNIs investing in new concepts such as luxury branded residences and integrated planned townships. I believe that plotted developments supported by well-planned infrastructure in promising suburban locations makes for good investments too — they are quicker to sell and generate strong cash flows for the seller while giving buyers a lower upfront outflow with the flexibility to build later according to their individual taste, and to reap the benefits of capital gains in the interim.
What are your development plans for FY 2017 and FY 2018?
We are continuing to grow in all our business verticals. In the commercial office sector, we expect the IT/ITeS (information technology enabled services) sector will continue to lead the market when it comes to leased spaces, followed by the BFSI (banking, financial services and insurance) and consulting sectors. The growth in e-commerce has caused a spike in demand for large warehousing and distribution spaces resulting in reducing vacancies and increasing rents.
Further, development in infrastructure across and within cities will ensure better connectivity, transportation and basic amenities. Again, the pressure on our city infrastructure is significant, and we are working with authorities on public-private partnerships to enhance the urban environment for all citizens. In 2017, the market is expecting increases in both rental and capital value.
How’s your venture with Warbug Pincus progressing?
In 2015, Embassy Group partnered with Warburg Pincus to form a joint venture called Embassy Industrial Parks. We partnered with them for a joint investment of USD 250 million which will help the entity with land acquisition and construction. We are working closely with Warburg Pincus and leveraging their successful global experience in the industrial real estate asset class. I would like to say that the road ahead looks very promising and we are poised for immense consolidation and growth over the next year as we build industrial and warehousing spaces for the new world. We are committed to bringing quality Grade A industrial, light manufacturing and warehousing spaces in close proximity to leading consumer and industrial centres across India. These parks will be fully master planned to specifically cater to the industrial and logistics traffic movements and will boast a host of special amenities such as truck parking, canteens, rest areas, dormitories, business centres etc. This will ensure the park becomes a self-sustaining business environment.