Investing into commercial realty? Consider alternative approach
Private equity funds can offer you a cost efficient means to
invest in commercial real estate. You can expect regular income and capital
appreciation at the end of fund tenure.
Ever dreamt of owning your own commercial building in the
posh area of Bandra Kurla Complex in Mumbai or Gurgaon in NCR or Electronic
City in Bangalore and leasing it out to multi-national companies / corporate
giants? Considered purchasing a warehouse or a logistics park and having the
best of national & global brands as tenants? Always wanted to be a real
estate magnate with stakes in commercial properties all over the country?
Sounds like a distant dream for the common man and a reality only for a
privileged few; however it should not stop you from fulfilling at least part of
your aspirations.
Ever heard of a private equity (PE) commercial real estate fund – Sounds complicated? But let’s dig into in a bit. A PE real estate fund brings together investors from varied backgrounds, diverse financial appetites, who are totally unrelated to one another, pools in the funds to form a corpus and finally invest it in different forms of real estate across the country. Realty PE funds are typically development-based and buy equity stakes in projects. Also, there are few funds which invest into ready commercial properties which are already leased out to tenants, thus providing regular rental income from day one. There is an expert team in place who studies the growth potential and future valuations given the economic environment and an investment manager who will track the investment and progress of the project on a regular basis. As an investor, you can relax. Your money will however be locked in for a minimum period of 4-7 years depending on the terms and conditions of the fund post which you will have the option of cashing out with a significant return or can choose to re-invest your money elsewhere.
So how does a commercial real estate fund work?
In a commercial PE fund, you just have to put in the money. The rest is taken care of by the fund manager. It also allows you to participate in the realty market with an investment of as low as Rs 1 crore, as per SEBI regulations under AIF (Alternate Investment Fund) rules. It spreads the risk by making investments in multiple projects across locations. These projects comprise of not only of commercial office buildings but also warehouses, IT Parks located across the country. These projects are already completed and ready to be leased out to clients. The fund ties up with the developer and takes an equity stake in the project. The fund hence earns a regular income from the rent generated from tenants and also benefits from the capital appreciation on the property over a period of few years. During the tenure of the fund, the firm will ideally sell off its stake in the property and repay the investors with the benefits reaped from the capital appreciation.
Can’t I go solo?
A question that would come to your mind after reading the above would be, why can’t I just directly invest in a property and lease it out to a tenant, all I need is a broker who will find me the property as well as a tenant for a fee? Yes, Investing directly allows you to be the sole or joint owner of the property, but it also requires more effort. You have to first identify a location and a property with sound growth potential and do the due diligence. You then have to go through the paper work and get the property registered. Following which, you have to find a tenant if you want to earn a regular income. If your goal is capital appreciation, you have to find a buyer once the price crosses your target. Also maintenance of the property will be your responsibility. Moreover, you will be running from pillar to post to enquire if the builder has an Occupation certificate, Completion certificate, has the municipal corporation given clearance, etc. I mean it is your hard earned money after all and you would not want to lose it due some errant builder’s vested interests or lack of information shared by the previous owner.
Types of funds available for investment
Commercial real estate PE funds, come with different structures, investment objectives and tenures. All of the relevant information will be communicated to you prior to your investment. The most popular option is a Real Estate Rental Yield Funds. A rental yield fund will typically invest in properties which are completed and ready to be leased out to commercial tenants. The fund enjoys rental lease income for a period of 4-7 years, post which it may choose to cash out and benefit from the capital appreciation as well.
How do you benefit as an investor
•Capital appreciation – Property / Real estate as an asset class, if selected appropriately will always appreciate. As an investor, you will be able to benefit from not only the rental income but also from the capital appreciation that the project generates.
•Expertise – The fund manager in charge of the fund will scout for investments which are available at a low capital value or in a distress sale so as to maximize on the return generating capability of the investment. The fund manager is a domain expert who has his ears on the ground and is well aware about the market sentiment. His expertise also plays a key role on determining the exit timing and valuation of an investment.
•Limited volatility – Real Estate investments via PE funds are long term vehicles wherein one can expect above market average returns provided the investor stays invested throughout the term of the fund. Contrary to this, the equity markets can show both short term superlative returns and sudden downfalls for reasons uncontrollable by the investor. Real estate by default is a solid asset class and will provide ultimately superior returns in the long term compared to any other asset class thus riding out the volatility other investment avenues might show.
•Payouts at regular intervals – The fund usually issues returns on a quarterly basis to its investors. So as an investor, you will be assured of returns on a regular basis.
Is such an investment suitable for me?
It is a misnomer for many investors that a PE investment could become an alternative to his initial investment into real estate. By this we mean that the investor should first complete purchasing his own house / land that will secure his future and only then consider investing into a PE fund. If you are an individual who finds it feasible to lock in an investment to the tune of Rs 1 crore for a period of 4-7 years, investing in private equity is suitable for you. Though the fund will issue payouts to you on a regular basis, one needs to have a sufficiently long holding capacity. In fact, if one were to look at current commercial yields in India, especially in metros like Bangalore & Mumbai, one can expect to earn 9-11% yield through rental income over the fund’s life and subsequently enjoy the benefits of capital appreciation as well on exit. Going forward, and as per many real estate reports published by global IPCs, Mumbai will lead the global rental yield markets by 2018, providing yields upwards of 15% pa.
To sum up, the commercial real estate industry in India and abroad over the last decade has dynamically transformed into a lucrative investment destination for individuals. It is every person’s aspiration to own properties across the globe but not many can make this a reality. A real estate PE fund provides one with the option of investing their surplus in properties across the globe by sitting in the comfort of their homes. Safe, secure and hassle free, be a part of the upcoming realty boom and turn your dreams into a reality.
Ever heard of a private equity (PE) commercial real estate fund – Sounds complicated? But let’s dig into in a bit. A PE real estate fund brings together investors from varied backgrounds, diverse financial appetites, who are totally unrelated to one another, pools in the funds to form a corpus and finally invest it in different forms of real estate across the country. Realty PE funds are typically development-based and buy equity stakes in projects. Also, there are few funds which invest into ready commercial properties which are already leased out to tenants, thus providing regular rental income from day one. There is an expert team in place who studies the growth potential and future valuations given the economic environment and an investment manager who will track the investment and progress of the project on a regular basis. As an investor, you can relax. Your money will however be locked in for a minimum period of 4-7 years depending on the terms and conditions of the fund post which you will have the option of cashing out with a significant return or can choose to re-invest your money elsewhere.
So how does a commercial real estate fund work?
In a commercial PE fund, you just have to put in the money. The rest is taken care of by the fund manager. It also allows you to participate in the realty market with an investment of as low as Rs 1 crore, as per SEBI regulations under AIF (Alternate Investment Fund) rules. It spreads the risk by making investments in multiple projects across locations. These projects comprise of not only of commercial office buildings but also warehouses, IT Parks located across the country. These projects are already completed and ready to be leased out to clients. The fund ties up with the developer and takes an equity stake in the project. The fund hence earns a regular income from the rent generated from tenants and also benefits from the capital appreciation on the property over a period of few years. During the tenure of the fund, the firm will ideally sell off its stake in the property and repay the investors with the benefits reaped from the capital appreciation.
Can’t I go solo?
A question that would come to your mind after reading the above would be, why can’t I just directly invest in a property and lease it out to a tenant, all I need is a broker who will find me the property as well as a tenant for a fee? Yes, Investing directly allows you to be the sole or joint owner of the property, but it also requires more effort. You have to first identify a location and a property with sound growth potential and do the due diligence. You then have to go through the paper work and get the property registered. Following which, you have to find a tenant if you want to earn a regular income. If your goal is capital appreciation, you have to find a buyer once the price crosses your target. Also maintenance of the property will be your responsibility. Moreover, you will be running from pillar to post to enquire if the builder has an Occupation certificate, Completion certificate, has the municipal corporation given clearance, etc. I mean it is your hard earned money after all and you would not want to lose it due some errant builder’s vested interests or lack of information shared by the previous owner.
Types of funds available for investment
Commercial real estate PE funds, come with different structures, investment objectives and tenures. All of the relevant information will be communicated to you prior to your investment. The most popular option is a Real Estate Rental Yield Funds. A rental yield fund will typically invest in properties which are completed and ready to be leased out to commercial tenants. The fund enjoys rental lease income for a period of 4-7 years, post which it may choose to cash out and benefit from the capital appreciation as well.
How do you benefit as an investor
•Capital appreciation – Property / Real estate as an asset class, if selected appropriately will always appreciate. As an investor, you will be able to benefit from not only the rental income but also from the capital appreciation that the project generates.
•Expertise – The fund manager in charge of the fund will scout for investments which are available at a low capital value or in a distress sale so as to maximize on the return generating capability of the investment. The fund manager is a domain expert who has his ears on the ground and is well aware about the market sentiment. His expertise also plays a key role on determining the exit timing and valuation of an investment.
•Limited volatility – Real Estate investments via PE funds are long term vehicles wherein one can expect above market average returns provided the investor stays invested throughout the term of the fund. Contrary to this, the equity markets can show both short term superlative returns and sudden downfalls for reasons uncontrollable by the investor. Real estate by default is a solid asset class and will provide ultimately superior returns in the long term compared to any other asset class thus riding out the volatility other investment avenues might show.
•Payouts at regular intervals – The fund usually issues returns on a quarterly basis to its investors. So as an investor, you will be assured of returns on a regular basis.
Is such an investment suitable for me?
It is a misnomer for many investors that a PE investment could become an alternative to his initial investment into real estate. By this we mean that the investor should first complete purchasing his own house / land that will secure his future and only then consider investing into a PE fund. If you are an individual who finds it feasible to lock in an investment to the tune of Rs 1 crore for a period of 4-7 years, investing in private equity is suitable for you. Though the fund will issue payouts to you on a regular basis, one needs to have a sufficiently long holding capacity. In fact, if one were to look at current commercial yields in India, especially in metros like Bangalore & Mumbai, one can expect to earn 9-11% yield through rental income over the fund’s life and subsequently enjoy the benefits of capital appreciation as well on exit. Going forward, and as per many real estate reports published by global IPCs, Mumbai will lead the global rental yield markets by 2018, providing yields upwards of 15% pa.
To sum up, the commercial real estate industry in India and abroad over the last decade has dynamically transformed into a lucrative investment destination for individuals. It is every person’s aspiration to own properties across the globe but not many can make this a reality. A real estate PE fund provides one with the option of investing their surplus in properties across the globe by sitting in the comfort of their homes. Safe, secure and hassle free, be a part of the upcoming realty boom and turn your dreams into a reality.
Happy Investing
Source:Moneycontrol.com
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