Blumberg Capital plans to invest in office space in Delhi & Mumbai
December 14, 2009
Pallabika Ganguly and Ravi Samalad (ML): What are your investment plans for India? What, according to you, are the opportunities available for an institutional real estate investment manager like Blumberg in this country?
Philip F Blumberg (PB): We are looking at opportunities in developed commercial office space in Tier I cities, but at present we are more concerned about the regulations. Once the new real-estate regulations are implemented, then we will surely invest in India. If laws are changed, we will create more India-focused funds.
There are many investors like large pension funds in the Netherlands, insurance companies and banks in Germany, public funds in the United States and innumerable foreign and high net-worth individuals (HNIs) in the US, who want to invest about $500 million, but they are waiting for stricter regulation to be implemented in the real-estate market.
ML: How much money do you plan to raise, and what would be the route that you will take? Which other markets are you planning to invest in, other than India?
PB: We are raising $1 billion for our real-estate fund and plan to raise several billion more over the next three years for a number of new funds including media and entertainment, healthcare, and merger and acquisition funds. I expect about 50% of this to come from HNIs and the rest from institutional investors. Our real-estate fund will have up to $300 million available for non-US investments including India. We are raising the capital across regions including the Middle East, Europe, Latin America, India and the Far East.
ML: When do you expect your funds to start flowing into India?
PB: We are currently in discussions with some big players in the Indian realty sector. We are also waiting for signals from the government in terms of tax and other regulations, so investment will start once there is a favourable situation. It will at least take a minimum of six months before we take some steps.
ML: Are there any hurdles to entering the Indian realty market?
PB: We cannot have full-scale operations in India mainly due to the tight regulations about foreign capital coming into India. Currently, we are only allowed to invest in projects which are three years old. The tax charges in India are fairly high. Till the time these issues are not solved, we won’t be able to invest in India.
ML: What about transfer charges?
PB: There are multiple transaction fees and higher taxes (in India). Lack of transparency in transfer charges is a problem in India. In most of the deals, we notice that the proposal is not the same as the law states. In the West, the fees are fixed.
ML: In which Indian cities do you plan your investments?
PB: Right now, we are looking at large-size deals in commercial spaces in New Delhi and Mumbai. We are in talks with some big players in these cities. We are also looking at investing in Tier II and Tier III cities, but we feel that there are more opportunities in Tier I cities than other cities. Tier II and Tier III cities do provide lower costs and good opportunities for growth, but the only hindrances stifling investments are government regulations.
ML: What kind of deals are you striking in New Delhi and Mumbai?
PB: We are looking at opportunities in investing in commercial properties. We will look at absorbing risk with (a view towards) significant returns. Our capital (investments) will carry some risk, but we do not want to invest in a building where 35% space is vacant and the other 35% is owned by tenants, who (typically) shy away during a slowdown. We follow the same procedure in the US. In the US we allow maximum 25% of the building to be owned by tenants. I will take financial risk but not operating risk.
ML: During the slowdown, people were cautious. So where did investors invest their money?
PB: Some investors look at lending and some look at preferred returns. In lending, we get the first 9% stake in development and we also share some percentage of profit. The other type of investment is when you get the same return as the developer. If the returns go up, you start out at the higher percentage of cash flow. If the developer makes more money, he gets the higher cash flow. This method allows us to weigh our return in the earlier part, making it safe.
We mostly prefer to pick up 10% stake in a well-developed property. But at the moment, we want to wait and watch. We will take a decision after verifying how many new supplies come into the market, how transparency (improves) and how regulations affect the scenario in the real-estate market.