Jones Lang LaSalle India, the country’s largest international property consultancy, has launched an exclusive Corporate Finance division. JLL Corporate Finance will address the requirements of corporates which are not in the business of real estate to make informed decisions about acquiring, disposing of or optimally utilizing their existing real estate assets while enhancing shareholder value.
“This division has been established specifically to service companies that are not into the real estate business and yet have real estate holdings, be they leased or owned,” says Ambar Maheshwari, Managing Director – Corporate Finance, Jones Lang LaSalle India.
Every business is functionally into real estate, but not every business has the expertise required to make sound business decisions about its estate holdings. Traditionally, all Indian corporates have parked funds in real estate when they have excess liquidity, especially when they perceive the property market to be depressed. During times of market improvement or when they require liquidity to rake back into their business, they tend to monetize their real estate holdings.
“At the stratum of companies for whom real estate is not a core business focus, such real estate dealings have been taking place from a gut-feel, promoter-driven perspective rather than in a manner that focuses in on an organized utilization of cash flow,” clarified Mr. Maheshwari. “Such a perspective can only come with a sound understanding of the real estate sector, which is extremely important when it comes to addressing the shareholder value issue. Real estate is a substantial asset class, and unless corporates optimize the returns their real estate portfolios yield, shareholder value is compromised.”
Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, says, “Real estate as an investment and asset class has existed in India almost forever. However, this sector has also been limited in many respects by a severe dearth of information. JLL Corporate Finance will assist corporates to make informed decisions about acquiring, disposing of or optimally utilizing their real estate, regardless of whether they occupy it or have acquired it purely from an investment perspective.”
Depending on market dynamics, geographic specifics and the business typology, buying or selling a land parcel may not be the best possible option for a corporate – even if the real estate market is on an apparent upswing. Based on a professional analysis of the corporate’s real estate portfolio, an expert advisory can come up with the best solutions which may be a joint venture, a strategic partnership with a developer or occupier, or conversion into a full-fledged income-generating asset via sale/lease-back transaction.
When it comes to such focused services, there is currently a huge gap between what is required and what is being offered on the marketplace. While IPCs already service a large variety of stakeholders in the market, these stakeholders tend to primarily consist of real estate developers and occupiers. Advisory entities that currently service corporates who are not into real estate are accounting firms, investment banks and boutique financial players. Such entities generally advise corporates on various shareholder-related issues – and while real estate may be one of the advisory aspects, they are invariably ill-equipped to offer expertise-based insights into this area.
“Considering that optimal value creation for shareholders is a key concern for large companies, and that real estate is an extremely significant asset class, this aspect needs to be addressed by experts and not via proxy by non-specialist agencies,” says Mr. Maheshwari.
STRATEGIC TIMING
JLL Corporate Finance is being launched at a very considered point phase of Indian real estate. The market in India is at a very nascent stage, but nevertheless has achieved greater depth than ever before. Today, there is a much wider swath of participants whose requirements need to be addressed. Five years ago, an IT company that aimed to execute a lease/buy-back transaction for their real estate portfolio would not have found too many interested parties. For instance, insurance companies are still governed by IRDA norms and cannot acquire real estate as an investment asset class. Similarly, banking companies are limited from acquiring real estate by the Banking Regulation Act.
However, there is now a new breed of organized investors on the market who are actively scouting for transactions of this nature. They include private equity funds, domestic funds and NBFCs who can structure a deal in a manner which will allows corporates a higher degree of monetization of real estate assets.
A number of overseas players are now routing capital specifically earmarked for investment into Indian real estate, which has gained significantly in stability, risk-adjustment and income generating potential. There are going to be some profound changes is the manner with which capital finds its way into Indian real estate over the next 2-3 years. Real estate-specific corporate finance is clearly a concept and service whose time is now.
RECENT CORPORATE FINANCE REAL ESTATE DEALS:
- Jet Airways to enter into development agreement with Godrej Properties for its 2.5 acre land at Bandra Kurla Complex
- Mafatlal Industries sold its 7.6-acre plot in Byculla to Gliders Buildcon, a subsidiary of Piramal Realty, for Rs.605.80 crore
- Borosil Glass Works sold its 18-acre industrial plot near Andheri-Kurla Road to Sheth developers for Rs.875 crore
- Kalpataru acquired Bayer Cropscience’s 100-acre land parcel in Thane
