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The Commercial Real Estate Masterclass | Aryaman Vir @ Myre Capital
363 Plays2 years ago
Commercial real estate means office space and investing in commercial real estate is a missed opportunity for Indians. Aryaman speaks to Akshay Datt about why it’s a missed opportunity, the emerging trends, and how Myre Capital, India’s first neo-realty investment platform, is disrupting this space and creating a very unique asset for average Indians. Invest in this episode to find out!
Know about:-
- Identifying gaps in India’s real estate market
- Zero to One Journey
- Monetization strategy
- Role of technology in business processes
Recommended
Transcript
Family Tradition in Real Estate Investment
00:00:00
Speaker
Hi, everybody. I'm Armin Meer, the CEO and founder of All Nighter Capital.
00:00:16
Speaker
My father, like most people of his generation, had a bias for saving rather than spending. Eating out was something you would do at best once in a month. And where did he put all his savings? In residential real estate. He bought not one, but three houses throughout his working career.
00:00:33
Speaker
And I guess a lot of Indian middle-class families have a similar story to tell.
Missed Opportunities in Commercial Real Estate
00:00:38
Speaker
I really think that there is a missed opportunity here of investing in commercial real estate. Commercial real estate means office space. Now, why is this an interesting opportunity that Indians miss out on? So that's something that we discuss in this conversation.
00:00:54
Speaker
And the reason why we miss out on it is the opportunity that Maira Capital is chasing. Simply put, you need to have tens of crores to invest in high-quality commercial real estate because the kind of office space that an MNC would want to lease out will cost that much.
00:01:13
Speaker
So listen on to this insightful masterclass of all things commercial real estate. We talk about the trends, we talk about what can we expect in this space, and we understand how Maira Capital is disrupting this space and really creating a very unique asset class for average Indians.
Armin's Educational and Career Journey
00:01:31
Speaker
You're listening to the founder thesis podcast with your host Akshay Dutt.
00:01:43
Speaker
I've actually been in the U.S. for, what, seven or eight years before moving back to India two years ago. I went and learned my education purposes, so both the parents you can see to some extent will interpret yours in their dime, so currently they run our established architecture practice, but of course they work with the founders and creators of the word brand.
00:02:00
Speaker
I was very young when they were setting it up, but definitely I saw the different stages that come in setting up a business, the kind of responsibility and also accountability you have to various stakeholders. So those things that I got to see a new thing. So I did my undergraduate and master's from the University of Pennsylvania, the engineering school. So a lot of that was tech driven. So I did computer science, networks engineering, eventually I did my master's in big data and systems. But simultaneously I kept taking courses in finance and real estate for Horton.
00:02:30
Speaker
And because your parents were in sort of like the real estate services space, which is why you had an interest in that space. Well, actually what intrigued me is that the real estate sector in India was quite unorganized to the extent that there were large players and the barriers to entry were quite high. Being in this space for so long with my parents, they made certain investments and those investments did well. So I was constantly looking at a way of sort of making the whole asset class more accessible, more friendly, changing the perception of the asset class.
00:02:59
Speaker
and leveraging technology for it because that was my core competency and predominantly technology and real estate didn't do a lot that much, so they're not the fields. Actually, I was doing a lot of coding much before I went to U-Bend, so I was very comfortable with the one that I killed in schoolwork.
00:03:17
Speaker
So by the way, when I kept taking Diamond, you were all throwing the legs to work in interesting startups. At one point, I extended my summer internship into a wonderful and fun year job. You know, my college experience wasn't so much to get through a curriculum as it was to figure out what I wanted to do. I worked at a softback division fund. I even worked in a survey, the XC of housing.com, or all the others. So he was building a diet tech back in the land.
00:03:41
Speaker
So that was never the exception of that tech solution development until the launch of it. So I took a year of homework and I should even do this. Wow. Okay. And Arak is in India. So you came to India or this was like a remote thing? So we started off remotely because this was actually at the intersection of all my interests. Eventually I realized that it's very different being a remote team member of a, especially a startup and being then brethren. So one fine day I just took a flight to Mumbai and what they led to the next, then I was there, broke away to 10 months.
00:04:11
Speaker
Okay. And what does Anerog do? How would you define that company? What is their business line?
Tech Integration in Real Estate Brokerage
00:04:17
Speaker
Sure. So, there are consultancy in the real estate field. So, they look at various states. They look at a traditional broking, which they are most commonly known for, at least to a larger audience.
00:04:26
Speaker
their own reports, valuations. But interestingly, what Anadoc has done is taken a deck approach to things. You can say tech developments that they've made recently, they've come up with an AI algorithm to understand the quality of inbound leads. So here on today, progress to 100 leads before converting one. Anadoc is trying to, via AI, filter that down to a much lower quantity of leads required to convert parts. They're trying to approach and drop this aspect, and I found that very interesting.
00:04:53
Speaker
and working with Lexi or Losing.valve was being in the prospect space. But eventually I moved back to the US. I worked at Softbank thereafter. At Softbank, in fact, I saw a lot of startup space. I saw finance. So I spent my next couple of work experiences and investment banking and venture gap just to get that finance aspect of things.
00:05:11
Speaker
And eventually, when I felt that I bucked the required experience, I started looking for a pivot into the frog tech investment space. But eventually, the models I was looking at in the US were lacking in India. And that's where, effectively, I saw the opportunity. What was the thesis? Like, what was the gap you identified that you felt could be a, there could be a business built
Challenges in Traditional Investments
00:05:30
Speaker
around it?
00:05:30
Speaker
So short, so there were three issues with real estate. The first being that there was too much data. I said we're 300. Western size was very large for commercial. So 50, 70, and the point is it doesn't matter who H&L and R that was concentration risk got ideal.
00:05:45
Speaker
So that was what? The second was that at the start of COVID and all of this transpired at the start of COVID, your fixed deposits and debts, debt products were not giving what returns, even the rate of fixed deposits were giving 5%. That commercial real estate comes very attractive, where you get monthly cash flow, you know, long term edges and 8 to 10% use.
00:06:04
Speaker
That was the second part. And the third part, again, was something which was situational. The SEBI and NBI increased the minimum investment requirement at most coordinated funds. So some went with 10 lakhs, 20 lakhs, even 50 lakhs. They have very many investment options apart from mutual funds and updates. That was the whole ecosystem, which enabled us to come into a very niche segment.
00:06:26
Speaker
a very under-created segment for that matter and effectively open access to the other state which previously investors would not even consider. In what sense open access? Traditionally, middle-class savings always include buying a house. So in what would you say that they did not have access to it?
00:06:43
Speaker
Sure, so in fact, when I went and asked people feedback about their experience in real estate before starting my day, I only wrote two things. One, either they made a lot of money or secondly, they burnt their hands. There was no middle ground to go investing at real estate. Now, the point with residential is that you get a new percent return. Now, sure, if that area tends to increase here, then you speculate to be made money. Two percent return. Can you define return? Are you talking of rental income or appreciation?
00:07:08
Speaker
you're going to link up. So, you know, it's about 2%. Everything is left with speculation. And more often than not, the rest of us are not making money. I mean, the really old asset class has been quite flat for a few years and, you know, there's a lot of oversupply. The second avenue where people were resting in commercial real estate was through those smaller shops.
00:07:27
Speaker
So, there was a lot of instability in tenancy, there was a lot of uncertainty, high maintenance cost. So again, that came with the tone challenges. The traditional way of enriching into real estate where funds are participating, your whole demands to hire a part of the building is commercial real estate. The reason for that is true for one, you have very long term thesis with your MNC tenants and your stock exchanges to tenants 15 years, 20 years. So, that's where your visibility into the kind of rentals you're getting.
00:07:54
Speaker
Second, that they don't know also where you have benefited. Getting it to 10% again only from mental disorder with appreciation. So the proposition was something which enabled us to give access to real estate in a much more controlled structure and safe manner when sort of diversifying into this asset
Indian Commercial Real Estate's Global Appeal
00:08:10
Speaker
class.
00:08:10
Speaker
So what you're saying is that large sized commercial real estate is a very good investment which a middle class person normally cannot access simply because of the entry barrier of a minimum ticket size of doing that purchase.
00:08:27
Speaker
No, absolutely. In fact, you see the last couple of years, what is up? Brookfield, Blackstone, all your institutional funds, they are deploying more capital in the Indian commercial real estate than anywhere else in the world. So we are a developing country. Capital values are low, and the raw fundamentals of India are very strong. They are a global ID hub. So with that end, we have access to cheap and quality talent. So a lot of MNCs are easily setting up outsource centers, capability centers, research facilities in India.
Investment Funds vs. REITs
00:08:57
Speaker
And so you said that there is something called an alternative fund that also allows you to access this kind of a project, like a large commercial real estate project. Yes. So there are alternative investment funds. At least funds, the basic requisite is a one go of investment. So that's the first threshold. The second important difference is that traditional funds like the one we're discussing.
00:09:18
Speaker
These have been blank rule funds where you give money to a investor, to a fund manager and he allocates it as for his best understanding. In our case, before that it was fact, we identified what we are investing it to and then position it to our investors and I thought we want to invest in this online. So the kind of transparency into the end use of that funds is far over Europe and people are increasingly getting a lot of blank rule funds.
00:09:41
Speaker
So this alternate investment fund, you're saying that is a blind pool fund? Absolutely. So that's one of the traditional funds. And yes, in some cases, they have been identified by a sector or they are identified by a city. Or we invest in, say, in Bangalore, or we invest in senior living. But the underlying assets have never been identified. So that again comes to the discretion of the fund manager. So it's like mutual fund, where you can say large cap, you're investing in a large-cap mutual fund. But which stocks is the discretion of the fund manager?
00:10:09
Speaker
That's the most accurate comparison,
Fund Structures and Investor Requirements
00:10:11
Speaker
actually. But then there's a reason why that exists, because lay investors would not have the time or the expertise to make a judgment on is this a good investment or not. And so you leave it to the experts. That's the logic behind that.
00:10:25
Speaker
No, absolutely. In fact, so there are a certain type of investor who prefer that. However, what we are positioning is that we're still undoing all the work where we identify the property and we do the digits, acquire, manage. It's just that we tell you what you're getting into before you invest. So a lot of expectations are in line with what we are doing as an investment platform. So there's one discrepancy of information. So you often wouldn't laugh at it. A bundle reject a certain return. Your investors expect that return, but the appealing assets are not delivering, you know, at least not in an immediate appreciation.
00:10:55
Speaker
So then the missalary window of interest is the reason as to which people have started navigating the way through light pool funds. In fact, light pool funds today, they are getting lesser and lesser traction from institutional investors, the retail investors. But a retail investor cannot access a blind pool fund because you said it's like a one-carrel minimum ticket size to invest.
00:11:14
Speaker
Yes, so that is, it is a line grower minimum and the definition again of retail investor. Okay, HNI retail. Yeah, it gets stretched, but effectively, when you adopt what you did at anywhere, who is it investing 20 growers once who could have bought the broccoli themselves. There was this concept called real estate investment trust. So what was that? I remember reading about it a couple of years back when it was getting launched.
00:11:38
Speaker
Sure, the other state and restaurant trusts are today a fantastic vehicle, which promotes the dire commercial real estate sector as a whole. It's been prevalent globally for us all the time, but today it's basically been introduced in India. We've seen more rates come into the market. Now, what we need effectively is a mutual fund of real estate.
00:11:57
Speaker
They have a lot of underlying property, which is healing. Now, the rental gets passed on to the investors as dividends. And effectively, you're betting on the whole commercial real estate market, where this is not one building, not by buildings. This is a scattered portfolio of billions of spread rate balance here. It's more like betting into commercial real estate than a picking of stocks. So that's the basic difference. Okay. And this is also closed off to normal investments, or is it more like a mutual fund where anyone can invest?
00:12:25
Speaker
Sure, so today I think Sabi has reduced the minimum to only one lot. Earlier, there was a minimum of 400 lots. What is a lot? Sure, so you know how in equities you have shares, the same shares are not put to as lots. So, in reeds. So, over the minimum subscription or minimum investment size is drastically reduced over the last few years. In reeds, so today someone, yes, can invest with a few thousand or lakh rupees also, I read. The problem is the supply because the people who are caught, they were usually interested in investors.
00:12:53
Speaker
and there's very limited supply in the market of REITs. So, for that reason, whilst everyone can invest in REITs, it's difficult to actually get access to it. And what is the rupee value of one lot? You said one lot is the minimum. Yeah, it keeps fluctuating like equity shocks. So, some stocks are like, let's say, 1000 rupees, some are 200, similar with REITs, and various REITs to REITs and day to day.
00:13:16
Speaker
But it's like a ballpark estimate. You know if I remember correctly, around one rupees or one of the REITs, I mean, there's no significance of that. It's like a share price. I mean, that you have a unicorn company, your share price of that looks free. It's the same. It's the same. And now REIT, you're saying, has not taken off really. If you're saying that there are not enough REITs available, it means there's not enough demand for it. Like it hasn't taken off as an investment class.
00:13:41
Speaker
No, not necessarily. I mean, what happened is, if a lot of investors buy it and they don't want to liquidate it, then there is no supply for the next guy to buy. But then if a lot of investors are buying it, it would attract efficient market hypothesis. Yeah, but setting up a REIT is not... For example, let's say there was a lot of demand for a certain industry. Companies coming into that industry would still have to set up their company. They would run their operations to a point of listing. So, similar with REITs, the demand would be there today. But until a REIT becomes much lower, until you are ready to REIT for that matter.
00:14:11
Speaker
takes 2-3 years to set up and prepare for the REIT. So just because there's demand doesn't necessarily mean that there's going to be supply at that moment. But yes, we will see quite a few REITs coming into the market over the next couple of years. In fact, I think this year, two more rates have led. Okay. And why does it take so much time? Because you need to do a lot of due on-ground due diligence of lots of properties. That's why it takes time. Or is there like an approval mechanism which takes time?
00:14:35
Speaker
No, I mean the idea of it. So you can sort of compare this to a IPO listing. So even IPOs take much and much to plan and listen. This is after we create IPOs for years. Leads are relatively new. You can, concerning some census, put this as an IPO real estate or a portfolio of real estate. So yes, there's regulation. It's relatively new. So it takes longer. Real estate also is a bit more difficult to structure in terms of only entities and sort of FPDs and things like that.
00:15:02
Speaker
So it just takes time where it will get streamlined and when more hits come into the picture. Got it. Okay. And what is the management fees in a REIT like in mutual fund? I think it's one or 2% something like that. It's similar for a REIT. It's 2% I think in most REITs today. Got it.
Investor Selection in Maira Capital
00:15:18
Speaker
Okay. Okay.
00:15:18
Speaker
So essentially what is the positioning of Maira capital is that this is for a more sophisticated investor who would want to select because REIT alternate investment funds, these are all blind pool funds. You can't pick and choose one property, but if there is a more sophisticated investor who wants to pick and choose properties and yet is a retail investor, not someone who's investing 30 gurus. So that is where Maira capital comes in.
00:15:44
Speaker
shops are closer and comfortable like as for practical platformers like a private equity or a state farm. So the difference being that what they do is they acquire a certain property under market rates and their own return proposition is yes rental but it's also to exit the property for a five years and then give capital appreciation. A read on the other hand capital appreciation might happen based on stock price appreciation but that's not the intent of the read.
00:16:06
Speaker
The intent of a REIT is really to get your exit into. So, you have to ask the primary difference. So, in a product like ours, yes, you're investing for rentals, but you're affecting the appreciation at the end of it. So, it's more in line with private equity industry than your REIT. So, there's like a fixed time limit of the investment. It's not like a perpetuity thing. You are very clear right from day one that you're buying in. And in a couple of years, this will get sold and the money will come back to you with capital appreciation. And in the meanwhile, you'll keep getting a share of rent.
00:16:36
Speaker
Absolutely. So that's the basic and dead above that. Got it. Got it. Got it. OK. And how does capital appreciation happen in the REIT? Does the price of that lot get updated based on the estimated market price of the underlying real estate assets? Or is it like a traded thing and therefore there's a discovery of price happening?
00:16:55
Speaker
Yeah, anything that is listed operates the same manner based on demand and supply. So we are milling what the vendors really are now wearing, even in companies, in anything that is listed. Look at how certain individuals have performed now or they were valued at a certain price of faster accounting with the fundamentals and similar data.
00:17:13
Speaker
Here to give you the converse example, at the start of the Covid-19 embassy, everything went correct to plan, there were no changes in the election and back to 100% in the election. The stop phrase fell by 30%. Why did it fall by 30%? Because of the pre-delivered suspected insurance. Precisely. So that's how it is.
00:17:30
Speaker
So that way the data is not like a mutual fund because mutual fund price is not determined by demand supply pressures, but it is calculated based on the underlying equity on a daily basis, like the NAV. But yeah, the value of the equities are still speculative. So at the end of the day, it's the right speculation. We put all these things on. I think the models are the sell off. All of this will come now.
00:17:53
Speaker
So, retail sold on NSE BSE like a regular share? Yes. So, essentially, retail is like an IPO only then because you're like listing the shares of it. Okay. So, what happens when a portfolio becomes too large for a single investor to exit? They obviously, for example, no single investor can buy a portfolio. So, what then they do is they read it so that they also get a week of liquidity. Otherwise, what do these vendors do after aggregating this portfolio?
00:18:17
Speaker
Okay. So a REIT comes in when you already have the assets and then you go out and list those assets rather than collecting money to buy assets. That's not what a REIT is. Correct. Got it. Cool. I understand. So which is again another fundamental difference, like in buyer capital, it's not that you already have an asset and you're monetizing it by allowing investors to come in, but you're identifying assets and then inviting investors to come and fund the purchase of that asset.
00:18:42
Speaker
Yes. Got it.
Legal Framework for Maira Capital
00:18:43
Speaker
Cool. And so help me understand your zero to one journey. So you had an idea to do something like this. How did you proceed then? Were there any kind of regulations in this space? You know, did you need some sort of approvals? How did you actually go about building that pipe for an investor to have just one small share in that overall thing? How did you do all of that?
00:19:05
Speaker
So the first thing that we did is that we got a very solid legal framework about what we were doing. So we appointed a tier one law firm and that was the most time-consuming part. So that actually made the idea fail. So six months of work with CEOs and legal, you know, I had to bring to life an idea in the current drilling chapter.
00:19:25
Speaker
And when is this, like when you started working which year just to establish timeline? One and a half years ago, I think we launched up that form. So it's roughly about two years ago. So we started all this work about two years ago. It took six months just with legal and accounts. Right. Like early 2020 is when you started.
00:19:42
Speaker
Yeah, definitely. Once all that work was frozen, then, you know, we slowly started recruiting and we didn't recruit the people to begin with. We just started with two people and everyone did all the work. So that's how it initially was. And rather than trying to perfect our product, we thought that let's just pull out something which works and let's do a group of concepts. So that's how we went about it. We did a group of concepts, which went well for that. And it was just pretty much all organic.
00:20:07
Speaker
What was the result of appointing the law firm? Was there any kind of a regulatory approval that you secured? Or was it just to understand that, okay, what I'm doing is allowed? No, so a statutory investment, there is an investment structure, there are investment documents, companies are compliant, there's private placement compliance.
00:20:25
Speaker
So all of these documents have to be done and memorized, which is what we did with our legal bond. We understood how we fit into those frameworks. What are the limitations? How do we get it out of the limitations? Because in India, there are many structures in which you can do everything, choosing the best one, figuring out because it's not that one is necessarily better than the other. It's who is your government audience and what would be best for them. So that's what we have to figure out.
00:20:48
Speaker
So help me understand what you learned that what structure is best here. Like give me some details. Sure. So I mean, there are many structures in the LSB structure. There's a private limited structure. There is a lot of types of taxation. You know, you can do house property, DAC, business income DAC. There's many organizations and combinations. So sat down on Excel, we went.
00:21:08
Speaker
through it one by one. And we eventually just figured out a structure that number one, what is most important is a sense of security with the investment. So that's what we brought out of that. So we drove the private and we did it, use that company over in LNP. And second is that we will wind monthly cash flow. So we created a product that I bought through taxation, which enables them to, you know, pay tax in their hands. So these are all choices that we and all the documents and anything took a lot of time to prepare. We had to figure out that.
00:21:34
Speaker
Since there are going to be many investors, how do we ensure that one investor's liabilities won't pass on to the next? So all these kinds of clauses have to be developed. We have to take from the truth of an investor and effectively that's what we're paying for. What are you selling? Are you selling shares in that private limited company? Every investment opportunity is a new private limited company.
00:21:56
Speaker
Whose shares are sold. So therefore people have ownership. Yes. Got it. Got it. Got it.
Funding Maira Capital's First Project
00:22:01
Speaker
So each time you identify something, then you would first go about creating a private limited company to raise the funds to acquire it. And once you hit that target number is when the company would go out and buy that, that opportunity, that piece of property that you want to acquire. Absolutely. Got it. Got it. Got it. Okay. Okay.
00:22:17
Speaker
And these are people who are now owners of a private limited company. But then in private limited company, you don't exactly have liquidity to sell your shares of a private limited company. So they can't sell it off until the project is finally sold and the cash comes back.
00:22:34
Speaker
No, we have a secondary market. Most debt products in this country are not traded on a listed market. They're traded on a secondary market. What is it? NCT, MLD? These are all debt products, not convertible debentures, market-like debentures. These products are not traded on a stock exchange. They're traded when binding a substitute bio. So when you basically replace one buyer with another, it's called a secondary market. And we've seen a lot of liquidity being able to get released in 24 hours, 21 hours.
00:23:04
Speaker
And so you said that you lost with a proof of concept. So that meant that you identified one property and you lost it, like in terms of getting a private limited company up to invest in that one property and then finding investors. So tell me about this first project that you, what was the project you identified? What was the price of it? And how did you go about finding the investors for it?
00:23:26
Speaker
Sure. So the first project was based in Pune. It was in Magirpata city. So Magirpata is a very well-known development, not only in India, but also in Dhaka, the laboratory is a school case study about this township. So if you do a very unique opportunity, properties like this usually don't come onto market. They're owned by institutes and funds, especially children's funds. So Magirpata is like the location is premium. That's what you're saying.
00:23:49
Speaker
Location is premium. It's a captive township. So you have a bunch of buildings surrounded by all occupied residential. So a lot of them work in those 12 buildings. So these 12 buildings have never been wicked. And you know, the tenancy grow by is fantastic. The world grew up. Then I re-checked all the boxes. So when we do this, so I ended up running by the railroad project. And yeah, we do believe about it. We took it. We started funding.
00:24:10
Speaker
So when you say you took it, what does that mean? We signed a term sheet for the funding of the product. Which would make it legally binding for you to then provide the money. Now the clock started ticking for you to go and get the funds from the investors, basically. And what is the period of that clock? Once you sign a term sheet, how long do you have to collect the money? It varies. Deal to deal. In that period, it was about three months, I think.
00:24:34
Speaker
So three months is like pretty high stress though, right? Like you, you're on the hook for 30 girls and you need to find investors. Yeah. And we did all the DC and yes, it was not a work with, we get it out. I mean, number one, I don't think we didn't want that very by blacks. Yeah.
00:24:52
Speaker
You must have been sweating bullets. Yes, we were sweating, but we were actually figuring out what we were doing wrong because we were getting a lot of positive response. But the conversions were not happening. So we were figuring out what is wrong. Initially, people were targeting real estate investors, and what we realized is the other engineers would need us. They can go and buy the properties themselves and bring back the rules.
00:25:16
Speaker
So they switched to a salary professional, especially lawyers here, and that's where we found our race. You can see the talent individuals in our race. So, you know, this is the second week we went after, and we actually completed the funding, I think 48 hours before our deadline. So, yeah, we got in very close. We had a very small date, but we worked two and three months. Okay.
00:25:39
Speaker
And how were you doing customer acquisition? Was it like Google, Facebook, like performance marketing or was it like telecalling or what was it like?
00:25:47
Speaker
And we went back at that time, we were going and finding, because once we converted three or four CAs, we realized that CAs are the great target audience for us. We went to LinkedIn and just started. Because CAs understand the value of that investment. Yes. So we went to LinkedIn, we started finding CAs, calling them, because everybody was calling them. Eventually, we realized that, and we aren't just not in our world digital outreach like we are today, we ended up in a reach company where that was very insignificant.
00:26:15
Speaker
So, word of mouth, we reached out to every broker in the city, we went to chat with them, we shared our earnings with them, we don't learn that listeners do business at the end together. Why would a broker help you? Because brokers know H&I, that's the logic. Yeah, of course. I mean, their job is to raise funds for properties. So, effectively, this is a different kind of opportunity. So, you know, it would give them also variety in their offering. They've been telling the same thing now, you know, that the summit is working well and the summit isn't.
00:26:40
Speaker
So, for the ones that it wasn't working, those guys of any overdrive needed. And you would share some commission with the brokers? Yeah, we told the brokers that whatever amount we were making, we were happy to share that with them. The idea really was to demonstrate that this whole market exists. So, more than making money at that point, we were okay giving the entire fee up also, because the goal was to try and make money of our first project was to demonstrate that this could happen.
00:27:08
Speaker
If you like to hear stories of founders, then we have tons of great stories from entrepreneurs who have built billion dollar businesses. Just search for the founder thesis podcast on any audio streaming app like Spotify, Ghana, Apple Podcasts and subscribe to the show.
00:27:28
Speaker
This is something which doesn't really need you to go to a VC to raise funds asset because there is no, I mean, like, there's no heavy upfront costs here. Well, now today, if you ask for a team of 20, we have our office space. We've done heavier rounds of marketing campaigns, PR campaigns. That is a lot of costs associated, but we've always been very
00:27:48
Speaker
Congress into appear also be in short, then appear remains strong and something that is it doesn't go out of hand. Well, you know, and in the chase for growth, we are starting to know the profitability. So we want to go into a bit more conservative, but we try to remain sustainable. And yes, we see that.
Operational Cost Management without VC Funding
00:28:08
Speaker
quite often entertain the office as well, but the whole premise is that it's usually going to come in initially. So they can get an answer and help out the startup. The point is that because we were having a strong B&L, we never wanted to give away a distressed valuation. I mean, the need was never really there. Even today, we couldn't go to the outwork shop and consider it, but there's no requirement as such. We are waiting even in the next 30 days.
00:28:30
Speaker
Help me understand how this property gets managed, how you monetize. So you bought like a, like one floor or one building. What did you buy for $30? I mean, each project, like I mentioned, is different. And in these opportunities, in these interviews, there are great opportunities for 30-50 euros to get you one floor at best. But you're not like, squire hungry. So you buy a floor play. The other owners are not building women's life insurance, B and B medley. So all that's a mutual funds.
00:28:58
Speaker
But yes, our first one was a flop. Okay. And how, like what next? Once you bought it, how is it run? How do you manage it? Tell me about the logistics of making this work. Sure. So we have a, you know, asset management team. We also have over 10 organizations. So we often identify the tenant with overtaking the property that way, you know, it actually comes in probably one. So all of that, we have a very capable asset and in fact, very experienced asset management team, you know, and they look at all this for sales management.
00:29:26
Speaker
What you raise from investors includes some cash-in-hand because you may need to spend on fit-outs and stuff like that. So you would need some cash-in-hand, right? So it might be placed in all our costs. Upfunded, we don't spend a single review on fit-out. We make the tenant spend all the money. So that way, the tenant's forgiveness is also there to the premises. So that's in fact one of our primary conditions, that the tenant has to also put his skin in the game. And we need God to expect us to sign a 15-year lease, handing no commitment to the premises.
00:29:56
Speaker
Okay, so what you raised from investors, there is no cash-in-hand left for you. It is all going towards purchase of that property. Yeah, when people might be in reserve of 10-20-30 lakhs, but no removal of that. Okay, which is just like a contingency fund if there is any maintenance expenditure needed or something. Absolutely. And the building maintenance fees and all that is recovered from the rent, like all the running costs so that you would incur as the owner of that property. We make the guarantee.
00:30:23
Speaker
before you make the tenant pay. Okay, so there is no running cost for USH. You just have to collect the net rent amount from the tenant. No, so I really think it's good to put tenants in one word buildings and having good buildings in a damn like this gives us the advantage that we get out of the way of what gets them things in exchange. But all around the reach from one basic principle that we need to increase the tenants' stickiness to the premises so much that they can't make it as in bullet value.
00:30:49
Speaker
Essentially, for a tenant, you want to convert this into subscription-based ownership instead of just plug-and-plays, and today, here, then, tomorrow, then, you don't want that kind of a business. Yeah, and here's an example. You know, we're buying a property in Bangalore, which is where we are paying 8,000 rupees a square foot. The tenant is wearing fit-outs, which are valued at 3,000 rupees a square foot. So, he almost paid 30% of the property price on fit-outs. So, he has to be here for 10-15 years. I mean, if he's here before that, you know, it's not going to make sense.
00:31:17
Speaker
this private limited company which owns this property. So, do you also retain some ownership in that or everything is owned by the investors? Everything is owned by investors. We are simply the managers. So, we joined our asset management fee. Thank you for mentioning it. Neutral funds is 2%, then we reach 2%, and you will repeat 0.5% in 1%. Why do you not charge the industry standard 2%?
00:31:39
Speaker
Because we basically are doing everything tech-based, so all our lead job is tech-based, our conversions are tech-based, and the rest of the money is tech-based. They're saving a lot of money relative to what the industry operates on today. So we must always get the benefit of the whole point of using tech that should disrupt the norm and do what's the end of something we don't need. Plus, there is no active portfolio management. Say in equity, you are actively doing portfolio management, turning stocks and all that here.
00:32:04
Speaker
Indian State is actually a little bit different and in some sense, a little bit more intricate because we're signing legal documents with tenants, landlords, rain and the hour. I mean, when long down here, we still went to 100% at the election day. So despite tenants asked for discounts and things like that, because all of it is planning. So we had more examples to listen it over from other tenants for that same space. So when a tenant that asked us for a discount, we told them either you leave, we have this other tenant or you stay and be. Pre-empting those things requires active work management.
00:32:32
Speaker
If there are legal costs incurred to collect money and stuff like that, so that will be adjusted from the rental income. If it is over and above that contingency amount which you've kept, like you may end up needing to... No, we can keep up provision for everything. Even legal as a provision day one. And we can't wall that. So before acquisition, we can't lead all our legal work.
00:32:51
Speaker
And no, but to collect rent, you might need, like there could be a case where somebody defaults and then you need to use legal methods to recover and like those kinds of things. Okay. So that default risk is not really there. Okay. Yeah. So we use attendance money to figure out the solution.
00:33:09
Speaker
Nice.
Scaling Operations with Technology
00:33:10
Speaker
Nice. Okay. And so that was like first project, what you did. Now tell me how your own way of working your systems, your processes, how they evolved from project one to project two. What was project two like? What was the ticket size of it? How many days did you have then? Then how long did it take you to collect all that money? And
00:33:27
Speaker
Yeah, so projects do work again, about 35 per hour. That, in fact, we talk about four months of that day, after the first of the project. And those four months, what we understood is the different processes and how we will automate them. So a lot of tech work went on behind the scenes. What processes did you automate? Help me understand. Everything we did was the best. I mean, all of them, KYC, document signing, onboarding, both sales, investment tracking, funds tracking, then the collection and the first one.
00:33:55
Speaker
Okay, like giving them a dashboard. Yeah, and then the seats, showing the seats. I mean, a very small thing, which quite often we see on the flat corners, we think it's just part and parcel of that platform, but a lot of tech will be in all of it. So just thinking out of that whole workflow and implementing it, that was being done plus hiring, because earlier we had three people who had done everything, but that's not a sustainable way, especially in their lower terms. So we hired quite a bit.
00:34:19
Speaker
What kind of people did you have, like for doing sales? So that no one called us sales lot and mighty. We, in fact, everyone has two or three positions because at the end of the day, we are periodic sales cycles. So when we have half day, we have two months sales, one month we don't. So most people don't conduct writing strategy, fundraising, business development, recruiting. So, you know, everyone does a variety of things, not restricted to sales. Fundraising would be like sales, basically, right? Like somebody who's doing fundraising.
00:34:48
Speaker
As you can see, to some extent, but it's more to do with business development, where we plan webinars, we plan non-trivings, we are charity, so it's more to do with strategy. And the thing is, we can mostly do inbound, so it's not as though we have a deep sitting around calling people all day. We need to mostly do inbound, so when someone is interested in office, they got a digital approach, so we do automated e-mailers, Sam or the patient, you know all of that.
00:35:09
Speaker
And once someone expresses their interest, then we just simply speak to him for a matter of 15 minutes and he can complete his ongoing himself online digitally. And how do you take the money, payment gate to a bank transfer? So we do bank transfer with payment gate. We just can't process the sign of transactions that very well.
00:35:25
Speaker
What is the average size per investor? Minimum of 25 bucks. So like you spent a couple of months in putting these workflow automations in place and then building your team, then what was Project 2? Yeah, so then we double down on all these things that Project 2 we launched in Mumbai world and right next to the airport and then you're building world and swear.
00:35:44
Speaker
It was a subsidy of RBI, so fantastic. And in fact, the other technology vertical of RBI. Even the sexual services are in fact of COVID, so no problem there also. But overall, it was a very unique opportunity. We ended funding it in well within time. So I think two and a half months or two months, we took to public, which was a significant improvement. And we also did it far more streamlined. I mean, there was no stress, no pressure at any point. We were always in a good spot.
00:36:11
Speaker
And we've done quite a few projects thereafter. Now we are doing our project in time. This is the most ambitious one. Which project number is this, which you're doing now? This will be about five. Okay. And just quick summary of projects three and four. One and two you told me. What was project three and four?
00:36:28
Speaker
Yes, Abrajagat 3 again was in Mukherbhatta, and he saw a spot in the same cellar. So we had told him we would only buy half and then he sold the other half also because we could digest it. And the Abrajagat was in BKC and Mumbai, so that was also something which, back when we saw it, when he was in 48 hours, so that was, yeah, that was the flagship of Jeetwit. Right now we've taken the worst sandwiches project we've ever taken at close to 75 crores.
00:36:52
Speaker
Wow. Okay. Okay. And where is this? Tell me about the current project. It's in Bangalore. It's in Algarine Grove. Willy, the funding should be complete by the time this ends. It's a brand new device. It wouldn't go back to the tech park. Then it doesn't grow. Ah, grow. Okay. The unicorn. Yeah. It's the corporate headquarters. And again, this is a business which
00:37:09
Speaker
Well, it grows in the pandemic. So this was something we thought it would discover. So the placement was very interesting. Every round of money into the premises, because, you know, it's not like a normal office. They're putting escalators, they're putting a lot of very fancy stuff. So they're not leaving the space for a very long time. Okay. And do you see repeat buyers like someone who invested in Project One would also invest in Project Two? And what rate does that happen?
00:37:34
Speaker
Yeah, absolutely. In fact, we have a very high investment rate, especially for the ticket sale, 25 lakhs, 25% of our business get funded by existing investors. Yeah, even we still have 70 crores. We've roughly funded five crores from existing investors. So as your investor base increases, it gives you that confidence that you can raise funds more quickly because you know that a certain percentage of your investor base will come and invest in the next project.
00:37:57
Speaker
Absolutely. What are the ways in which you are requiring customers when you said it's like webinars? What else? So we do a lot of content first, marketing. So we do a lot of VR, public issues, educational research, vendor spaces. Apart from that, we do, we get a lot of effort on what a lot of investors. We started tapping into NRI public nations of recent, which are being created for us. And of course we follow the mainstream, follow the marketing. So all of that we do as well.
00:38:22
Speaker
And the way you make money is just that 1% management, 0.5% to 1% of management fees. That is the only way for you to make money. There is no other way. No, we have a performance fee also, which we charge at the time of the exit of the property, or when the property is sold. But we only charge it above a 12% IONR expense. Above a 12% annualized adult, if the investor makes any surplus money, then we charge it 20% profit share. So 80% in the resistance fees.
00:38:48
Speaker
Okay, which is like the standard PE hedge fund kind of a norm, or even VCs? Yeah, and so normally, VCs charge above 8%, so it's the wind if the three charge above that. Okay, above 8%. Okay, got it. And what do you think is going to be the life or the tenure of any of these projects? Like, when do you think that liquidation event will happen?
00:39:12
Speaker
So we projected preemptively based on the market scenario of cross-exact infatuated glass miners. But our earliest one, we've projected exits in 2025. Okay. For the project one or project one and three are the same building only, I guess. So why not? Yeah. So project one and three are in 2025. Project number two is, I think, 2030. So to get various, there's no, it depends on the property, the specifics, the results harden first.
00:39:37
Speaker
Is there a democracy in deciding whether to exit or not? Do you need to secure majority approval of the investors before you sell? Or how does that happen? How does the exit or the liquidation event happen? Yeah, absolutely. In fact, we suggested offers from the market. What we have always represented to the investors. Watch 75% or give us the go ahead.
00:39:57
Speaker
And the exit would involve selling the property, getting the cash back into that private limited, giving the cash to investors and then winding it up. Yeah. Got it. Okay. Okay. Okay. I've understood the full cycle. Okay. So how big do you think this space is? So currently you are doing a 70 crore project and you do what? One project a year, two projects a year. What will be your.
00:40:18
Speaker
I mean, so last year, in 10 months, we did 150 crores across whole projects. This year, we've only done 70 crores is what we're doing right now. I dug it this year in about 300 to 400 crores. So we're not really looking at rain, but it was six projects this year.
00:40:35
Speaker
So next year I've gone, it is one a month. So it depends on the sales velocity, depends on the kind of supplier that we get access to. But we are seeing strong demand. All our opportunities are being oversubscribed. So overall, currently demand is not a problem. It's greater standard and greater velocity.
00:40:50
Speaker
So you would end up doing 1000 crores total deployment next year and like maybe 1500 crores after that, something like that. That's the kind of growth rate you're seeing. By say four, five years down the line, you're looking at what two, two and a half thousand crore annual deployment.
00:41:06
Speaker
Not annual, I don't think this money can usually do more than $500 to $1,000. But at the end of the day, these are still retail funds. So it is a barrier into how many people are going to pay tax like this. So what we are trying to do is that by the time we hit category 5, we want to give exits. What we delivered or what we projected, those investors, more often than not, will re-oppress that sale, but with us. So effectively, our base will never really go down.
00:41:30
Speaker
So you want that liquidation event to happen when you also have fresh inventory to offer to that same pool of investors.
00:41:38
Speaker
No, absolutely. In fact, the dentists do always keep a property, like with a platform, so that investors are willing or something or the other to handle it. But yes, the liquidation event happens simultaneously, then nothing like it.
Revenue Model and New Product Exploration
00:41:49
Speaker
So, let's say if you have two and a half thousand total assets under management, so your earning would be like a one percent of, so like about 25 crores would be your top line number. Yes. Got it. Got it. Okay.
00:42:01
Speaker
Okay, so what is what's like the long term roadmap for my capital? So we're coming up with a few more interesting investment products. So we're diversifying a product offering. Again, that's something which is a work in progress. So we're still evaluating the risk return proposition, if this is right, provide extra things like that. But that is one of the areas in which you're looking to grow.
00:42:44
Speaker
What are some of those ideas that you're mulling over?
00:42:46
Speaker
So training that we wrestle in a safe manner is what we are contemplating because at the end of the day, risk is risk. So it doesn't matter if I'm managing it or someone, if it's a third party risk, then that risk is there. So just trying to figure out how we can accommodate and how we can position it. If there is an appetite, wouldn't solve all these things we evaluate.
00:43:03
Speaker
So if you were to go with land, then you would construct or you would have a developer, like you would find the land for a developer who would construct and then get it ready. The point is, first they have to be okay with getting into one different structure to begin with or getting into a lot of different issues to begin with. The structure that you can explore are many, but the fundamental question is that, is it okay for us as a platform, even if we destroy the risk, to push up something which would actually has lots of capital risk, even if the upside is our overlap.
00:43:40
Speaker
I'm guessing that the key lever to unlock or the key constraint to growth is supply. If you're able to get supply,
00:43:49
Speaker
Because there are so many things which have to fall in place for good supply, like you need the right location, you need a well-made building, so you need a developer who has good credentials, you need a tenant who is interested in that. So I'm guessing that your primary constraint would be supply, not demand, right? Well, supply is, with the water constraint, we're getting better at it, because the thing is that supply is not something which ever comes to an end of plan. It's like you mentioned, it's a mix of public parts.
00:44:17
Speaker
So you don't really find better by finding good properties and independently finding good tenants. And then we try and put those two together and effectively create a supply. So it's a ongoing thing.
00:44:58
Speaker
Okay, got it. So what's the path to like getting to a 100 crore annual revenue business?
00:45:06
Speaker
So I had one way since 5th door but we've also done revenues and really doesn't wonder what we are looking for as a profit because I mean revenue doesn't imply really anything. So because being launched and making less money is not ideal because one way is to go after growth but we want to improve growth but with real.
00:45:23
Speaker
So our intent is to maintain a very lean deal. Maybe right now everybody will expand to 30, but not more. And we're not at 25 crore by playing, we are highly, highly profitable. So our intent is to go and target 100 crore. What would be the profit at 25 crore? Like 10 crore would be the profit there, I'm guessing. I mean, your expenses? Maybe higher also. Okay. Your expenses might be at best like 1 crore, I'm guessing. And that's it.
00:45:56
Speaker
And you are the sole founder here. It's 100% owned by you. Amazing. And so I guess it makes no sense to even look at fundraise VCs because
00:46:08
Speaker
You have no need for it, right? You are almost at break even. By the time this airs, you will be breaking even and your costs are not going to rise exponentially. There's not a direct relationship between revenue and costs. It's not like for every one rupee more of revenue, your costs have to go up by the corresponding percentage. Yeah, not actually the background of this business that your costs are not written to revenue. Your costs are more or less fixed and revenue can keep growing on the same base. Amazing. Okay. Okay.
00:46:35
Speaker
Would the going like looking at the future would you have more business as in more investors coming directly or would there also be like a channel through which you acquire investors like the first time you did it you use broker network to acquire investors. So do you think that a channel contribution is going to be significant in the long term or it will be like direct acquisition that will be more significant.
00:46:58
Speaker
So we've actually the most successful for us is neither. It's actually refrills that we list, drawers, signal point of it was that that's something we are keen to expand on. We get a lot of directed messages also, especially from a lot of our content was marketing that we discussed, but through our other distribution channels, we're keeping them open. We are getting traction from them, but the idea is to bend for these, at least for repeat investors with our DIY platform.
00:47:23
Speaker
We're an organization with someone who wouldn't do 25 lakhs of digital crypto DIYs, but if you can register, you know how it works, then we eventually want to become a DIY platform. Okay, so the distributor-led acquisition would be pretty minimal because this is only like a one-time bringing in customer job that they would do, but as your existing base grows, the repeat purchase increases, the referral increases, so that would be a pretty marginal source of investment going through brokers and other distributors.
00:47:50
Speaker
Well, I'll put it another way. We have a team that manages partners, which includes, well, it's not in your life, but it rovers, even some serious, actually. And we are continuing to wrap that up because we don't know what the future holds for us. I mean, today, there is a 70k property. Let's go 150k property. Then every last one, irrespective of the non-broker, then all of it is important.
00:48:20
Speaker
What is the role of technology here besides the automation of your workflows? One role of tech is to automate workflows, make things DIY, move things along smoother. What else? Any other role of tech here?
Impact of Remote Work on Office Space Demand
00:48:33
Speaker
If I was to onboard 200 investors into a real estate property, it would take me two months of paperwork. You know, we'd double it by estate, all the signing and digital, and for that matter, all the post-aggressional reporting. So all the reports that you might have seen, now you should fund an everything that you got, everything else was the end to it. But that's why we are still in team. You can hit 50% of the work against Tanveer, you win 50% by tech.
00:48:54
Speaker
It was one of my favorite mistakes, tech for what they see on the website. But tech really is something which has to reduce cost by a means of automation. So a lot of our tech is on the operation side, back and side. But that tech is follow and it will do us today. Then let's say the tech, which is what the investor is really seeing.
00:49:11
Speaker
So there is this growing trend of remote work. So doesn't that concern you? Like from the perspective of commercial real estate losing its sheen, because maybe companies don't need big offices now. They would have a lot of their headcount working remotely. What do you think about that?
00:49:27
Speaker
So I'll say and talk a little bit about the trends in the industry that I wanted but I'll tell you how it actually impacted us first. For the first 2-3 months it was a fantastic solution to our promo. All the apply in the world team was very happy. After that I started getting the blades of fatigue. I suddenly had to take the blades of no space at home from my employees and eventually even wanted to come back to work. So what he didn't say is
00:49:49
Speaker
in the lockdowns. We did this concept called ultra work. So effectively what Redmond is and we all booked out a villa for the product we were dealt and we quarantined together, we worked together. So that's the extent we will go to because for us to do work for we will innovate, come up with solutions that have not existed before. It's important to be in a collaborative environment. Sitting in one house is drawn from us conducive of spaces.
00:50:13
Speaker
So overall, that's the perspective we have. But even in the industry too, we see leasing has picked up complete pandemic levels, large organizations are going back to work. And contrary to expectation, what is now happening is that earlier the area
00:50:30
Speaker
employee that have been dedicated by an N.C. with roughly 40 to 50 square feet. In a post pandemic we want to know M.N.C. the mandate is 75 to 80 square feet. So the consumption by employees is acrylic. So someone who was occupying wild floor earlier is now actually trying to optimize and choose to allow it in the same number of ways. So that's a trend that is actually calling a really massive uptick in the demand power space. I mean, only last week did you see at ABM, Coles and Drake, Accenture, all of these tenants are back in the market with other things.
00:51:00
Speaker
TCS had made this very bold statement at the beginning of pandemic that they will be 100% reward in a couple of years. You think that was just like over enthusiastic announcement. I don't think they're actually going that way.
00:51:12
Speaker
No, according to the contrary, TGS and back-end office, they've taken a full campus from Iran and Dany in Thade. So yes, we know from all over the start of COVID-19, it also was a solution to provide long-term comfort to employees. And when you have answered these organizations, that is worse than having nothing. So at that point, I guess the organization's very well-promo was a solution that would at least write them out, I don't know, a year or two.
00:51:36
Speaker
But today I don't think that it was a single employee which was that they wanted to work from all over the country. Got it. And what about co-working spaces? Have they recovered back to pre-pandemic levels? Are you aware of what's happening in that space? No, absolutely. In fact, co-working and the concept in itself is something which I am wary of where your theatrics do in individuals or small end startups. What is the more promising trend to see is the concept of managed research. So that's the evolution of co-working.
00:52:04
Speaker
So in various reasons, the concept really is to make a fully managed office, but for fully enterprise kinder. So if someone like a Microsoft, Amazon would take up large amounts of space, so smart world, indie cube, these are some of the clear and stable space that have pivoted from working to managed use. They don't want the risk of a single person. They don't want the risk of a small startup.
00:52:25
Speaker
So, the difference between co-working and managed leasing is the ticket size. Like, co-working would be single seats or five seats. Managed leasing would be 50 seats or 100 seats. That's the difference? Yes, and with that comes implied differences also. For example, working is, the whole model is made for single seats, but at high cost and high luxury. So, you go to a vehicle, you're probably in Mumbai and not being very, very by 30,000 rupees, but you get that kind of amenities. Now, at the price angle,
00:52:52
Speaker
doesn't heat it and also doesn't want to pay for it. So, compared to your management operator Smartworks, in the existing Smartworks, you are paying $6,000. So, that's the kind of price you have to add. So, it's a totally different model that comes out of it. Whereas, yes, the face value difference only is the type of tenant and the type of tenant, but it has many implied consequences that, you know, it is not an option.
00:53:14
Speaker
And probably there'll be a lock-in period also with a managed leasing contract. Like it's not like month-to-month payment. Absolutely. Five years. So essentially it's like regular renting an office except you don't have to worry about the day-to-day running of it. There's someone who's taking care of all the ancillary stuff. Your people just come in and work. Absolutely.
00:53:35
Speaker
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