The formula for growth in testing times

It’s a testing time for real estate developers ...

How testing is it, really?

And . .

What’s next?

These are the questions that define thinking of leadership teams at most property development firms today. The driving factors for this line of thought being liquidity crunch, inconsistent residential sales velocity, unsold inventory, reduced operating margins and additional regulatory parameters.

What’s next considering more onerous lending requirements, regulatory conditions and worsening market sentiment?

Ordinarily, these are the circumstances where most business people would throw up their hands in despair and seek alternative employment. But, canny real estate professionals see these circumstances through a positive lens, brim-filled with opportunity.

How can this be possible?

You see, there is growth in the office & affordable housing segments.We are witnessing new real estate usage classes coming to the fore – the rise of the co-manufacturing/storage and warehousing segment & alternative usage classesviz. co-working, co-living, student housing, senior housing, micro hotels and the like. These alternative usage classes are creating opportunities for existing developers who are keen to differentiate their present and future projects.

The pending question that remains: “Where should we focus for maximal growth?”

We see 5 steps to be followed in order to respond to current market trends:

Step 1: Internal Assessment aka “Holding up the mirror”

  1. It is axiomatic that a leader sets the tone of the organization they lead. In fact, most incidents of impropriety and nefarious, unconscionable behavior have been perpetrated by people who claim to lead without the credibility or credentials to do so! In India, the integrity of the head of the business is paramount and this sets the gravitas and tone for the rest of the business to emulate and follow. It provides customers and suppliers with the confidence they need to remain involved with the organization
  2. In addition to the leadership component, organizations are evaluated for theirtrack record and the capability and ability of their senior management team to deliver!

We believe that these two criteria are more important than their geographic spread and processes available to support their resources (land-bank, current book strength); real estate is all about people, after all!

Step 2: Market Analysis aka “How are we doing as compared to the market”.

  1. Are there any distressed assets in their portfolio?
  2. What is completion rate for their developments under construction?
  3. What is their carry-over (of vacancy / unsold stock)?
  4. Are they prepared to modernize their exposure to assets, away from the traditional to the newer sectors and segments?

Step 3: Identify the Market in the Gap

So, whilst there is a gap in the market . . the more important question is there a Market in the Gap?

  • - The herd mentality is what got us into this trouble so why follow the herd?
  • - Can we identify suitable high-RoI projects that plug the gaps in the market?
  • - New concepts abound, new segments, new uses for old / distressed assets

Step 4: Financial & Risk Assessment for chosen growth areas

It is important one understands the financial needs and key associated risk for each growth areas.

  • - We shall construct a complete RoI evaluation, evaluating each option against your KPI’s and requirements
  • - “Highest and Best use” and “Residual Land Valuation” are two proven evaluation systems that we employ<
  • - We benchmark the results against industry standards, both here in India and in other Complex Markets
  • - We can assist portfolios prepare for a REIT listing

Step 5: Create required resources

The final step is to understand your resource requirements to execute the chosen project

  • - This includes a review of the personnel needed: finance, people, partnerships,
  • - This exercise will bring clarity in your business focus and direct your firm in the right direction of growth. You will know which sector/s you need to focus in coming times and build a sustained business house.
  • - Identify Growth Focus Areas by drafting a weighted matrix for each identified growth areas:
    • A. Provide weightage (based on importance) to each parameter defined in step 1.[Sum of all weights is to be 100%]
    • B. Rate each parameter on the basis quantum of change required for all identified growth area under High/ Moderate/Low [Rate on a scale of 5; High = 1 and Low = 5]
    • C. List the identified growth area from least score to high.
  • - The highest scored project is thus to be evaluated further for investment and execution

About the Author

Gorakh Jhunjhunwala, MRICS

Gorakh Jhunjhunwala, MRICS

Gorakh spearheads Meraqi's overall operations, direction, strategy and growth.

He is a veteran real estate professional and has multidisciplinary experience across advisory, valuations, capital markets and investment management. He has advised over 50 clients on numerous consulting assignments and executed investment transactions valued at USD 100 million.

Gorakh holds a B. Arch from RVCE, Bangalore and M. Tech from IIT Delhi. Prior to founding Meraqi, he has spent over 15 years in key roles with leading multi-national real estate service providers.

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