‘Opportunity fund’ managers favor urban areas, commercial real estate

The Architectural Team and Stephen Chung

Commercial real estate in large urban areas will be the big winner from the tax scheme aimed at boosting investment in needy areas, according to an analysis released in November.

But who most benefits from commercial real estate deals remains up for debate.

Fund managers raising capital through the Opportunity Zone incentive programs are most focused on commercial real estate and multifamily housing, primarily in the Northeastern U.S., the National Council of State Housing Agencies said.

NCSHA reviewed public information on 34 such “Opportunity Funds,” and found that commercial real estate is the investment focus of 24 of them. Multi-family residential development is the focus of 23.

Ten of the funds focus on the Northeast, and five specifically target New York. Only two funds refer to investment in rural areas.

As previously reported, Opportunity Zones are pitched as a win-win, but some housing observers worry that they may funnel investment dollars to areas that are already in the process of gentrifying, accelerating that process and leaving behind areas that need the most help.

Many sources told MarketWatch that investors will see real estate as a more easily understandable means of putting their money to work than other programs such as education or labor.


ESR-Allianz Real Estate JV to invest $1 billion in India

Warburg Pincus-backed ESR is one of Asia’s largest developers and operators in logistics and warehousing. Photo: Bloomberg

Warburg Pincus-backed ESR is one of Asia’s largest developers and operators in logistics and warehousing. Photo: Bloomberg

Bengaluru: Asia Pacific-focused logistics developer e-Shang Redwood (ESR) has entered into a strategic partnership with global asset manager Allianz Real Estate to invest around $1 billion, including debt, into India’s rapidly growing logistics and industrial property market.

The joint venture will focus on developing large-scale logistics and industrial facilities in eight key cities—Mumbai, Pune, Chennai, Delhi, Ahmedabad, Kolkata, Bengaluru and Hyderabad—with an opportunistic approach to investments in other markets in India, the companies announced on Friday.

In addition, the investment programme will also identify opportunities to acquire assets in these cities.

“We are delighted to partner with Allianz, an existing strategic partner of ESR in other geographies. This JV with a leading institutional investor who has deep experience in Asia marks a key milestone in our regional growth plan,” Charles de Portes, co-founder and president of ESR, said in a statement.

The proposed investment programme will start with an immediate equity commitment of $225 million, to be funded on a 50:50 basis by Allianz and ESR. This would subsequently be converted into a $1 billion assets under management platform. The programme’s strategy is to leverage structural trends in tier one and selective tier two cities to build a long term, cash flow-positive logistics portfolio by acquiring a blend of develop-to-core, forward purchases, and stabilized or stabilizing assets.

On Thursday, ESR kicked off its first project in India, an industrial and logistics park in Chakan MIDC (Maharashtra Industrial Development Corporation), Pune.

Warburg Pincus-backed ESR is one of Asia’s largest developers and operators in logistics and warehousing, formed by the merger of e-Shang Cayman Ltd and Redwood Group Asia Pte. Ltd in 2016. Based out of Hong Kong and Singapore, it owns and manages around 7.3 million sq. m of assets in China, Japan, Singapore and South Korea.

Alongside the growth in the e-commerce sector in the country, the increasing internet and smartphone penetration, growing acceptance of online payments and favourable demographics will continue to propel e-commerce growth, spurring demand for modern logistics facilities, ESR said.

“India’s logistics sector is coming of age. The sector is benefitting from a lot of favourable trends, such as stellar consumption patterns, continued infrastructure spending, increasing transparency and the nation-wide implementation of a uniform indirect tax system,” said Rushabh Desai, Asia-Pacific CEO of Allianz Real Estate.

In India, the warehousing and logistics sector attracted investments of more than a billion dollars in 2017 and is witnessing a huge interest in building businesses around steady rental income. Canada’s Brookfield Asset Management Inc. is planning to enter the industrial real estate space, while Sydney’s LOGOS Group and Assetz Property Group from Singapore partnered in 2017 and are scouting for land. Embassy Industrial Parks Pvt. Ltd, Ascendas-Singbridge Group and Mahindra Lifespace Developers Ltd also plan to build industrial parks and clusters.


Blockchain Set to Change the Face of Commercial Real Estate As We Know It

Blockchain Set to Change the Face of Commercial Real Estate As We Know It

The real estate industry has seen significant growth since the recession. With market prices predicted to increase along with millennial demand in 2019, the industry is as welcoming as ever. Although the market is improving, it is still plagued by issues that make the investment process less convenient than it should be.

Major drawbacks of the real estate industry

Real estate investment has three major drawbacks: the presence of intermediaries, the lack of affordable funding options, and fraud.

Agents take up to six percent of the total payment made on a real estate asset. This means that intermediary fees would account for over $23,000 for a house that costs $400,000. Unfortunately, up to 80 percent of home buyers still use an intermediary and continue to pay these fees according to a report by the National Association of Realtors.

Real estate is also expensive and the prices continue to climb, limiting access for a greater part of the population. According to research by CNBC, an investment of $1 million will most likely buy about 270 square feet of prime property in New York. However, only about 10 percent of US residents can afford such a price tag.

Finally, the commercial real estate industry is rife with fraud, not just in the United States, but globally as well. According to a statement by the FBI, the internet crime complaint center saw a 480 percent increase in real estate fraud complaints filed in 2016. These crimes, including title fraud and online sale scams are aided by the rarity of trusted platforms where real estate documents can be verified.

How exactly can blockchain fix these issues?

A blockchain is an immutable ledger in which transaction data can be recorded. Its benefits include transparency, traceability, accessibility, and enhanced security. When implemented in the real estate industry, these properties can solve its major issues.

Blockchain real estate platforms eliminate the need for intermediaries like lawyers and agents by providing a means of property verification and payment to buyers. Paying for property using cryptocurrencies can also help buyers bypass bank fees. It cuts the fees associated with escrow by offering smart contracts that can be customized according to a users’ needs.

The tokenized nature of cryptocurrencies like Bitcoin and Ethereum makes crowd ownership of real estate possible. Those who cannot afford to purchase the whole property can simply buy a part of it, like buying shares in a company. Such investors would receive transferrable tokens that represent their shares and can be verified easily on a blockchain. This makes real estate investment accessible to more people.

Blockchain can also prevent fraud in the industry by providing a way to easily authenticate property documents. As these properties are transferred, their records are added to the blockchain and a comprehensive history is formed. In the event of a sale, buyers can easily check if property is fraudulent.

Bringing blockchain innovation to real estate

Several companies are working to bring these solutions to the commercial real estate industry. One such company is i-House.com, which implemented a series of ATO (Asset Tokenization Offering) projects in less than a one- year span. These projects allow users to crowdfund real estate development projects using IHT, the company’s cryptocurrency. So far, their reach has extended to the U.S., Japan, Thailand, and the Philippines.

The i-House ATO model provides real estate accessibility and a verifiable platform for related transactions. By Implementing such a concept in the industry, the i-House ATO platform is positioned to disrupt it positively. i-House.com Chairman and Founder, Ricky Ng., said:

“We aim to create a shared economy asset management ecosystem that spans across the globe, i-House ATO provides real estate owners, developers, and end users the means to own and share assets easily”


What Is No EMI Till Possession In Real Estate Purchase?

What Is No EMI Till Possession In Real Estate Purchase?

What Is No EMI Till Possession In Real Estate Purchase? Undoubtedly the scheme is more of a marketing gimmick to attract more and more buyers as real estate builders are in a haste to get away with the inventory as well as new projects. In the scheme, property buyer is not required to pay EMIs until actual possession of the property in question is given to them. In a general case, this scheme comes with a fixed validity of 2-3 years time during which developer or builder of the property is required to give possession to the buyer. And when the possession gets delayed due to some or the other reason, the burden falls on the buyer who then needs to make payment to the buyer. How the No EMI till possession scheme works? This scheme works similar to subvention scheme which banks used to grant until a few years ago before RBI scrapped it. For housing finance companies, RBI has not exercised any ban on such subvention schemes. Under the offer, loan is sanctioned for the property buyer, the builder or developer secures the funds and the lender gets a couple of customers directly from the builder. The buyer in turn gets the payment holiday until possession of the property and during this time builder makes the payment via post-dated cheques on behalf of the buyer. Typically, no EMI till possession offer is based on the 10:70:10:10 model. While making the booking for the flat, buyer is required to pay 10% upfront towards VAT and property registration. Bank finances the property purchase i.e. about 70% in tranches depending upon the stage of project completion and till the project is complete 80% of the funds are disbursed. And as and when the project gets completed, the bank disburses the remaining 10% balance and property buyer funds 10%.


Commercial real estate activity cruising at happy pace

Commercial real estate activity cruising at happy pace

The commercial real estate market is humming right now, with new users, new investors, new construction and lots of redevelopment of existing spaces in multiple places across the Grand Valley.

“People are really seeing the city’s commitment to downtown and the riverside connection,” said Brian Bray with Bray Real Estate, who recently sold a building on S. Seventh Street, between Main Street and Riverside Parkway.

“My wife liked the area down there,” said Allen Akey, who purchased the restaurant building at 811 S. Seventh with his wife, Lena Combs. “She thinks it’s going to be an upcoming, growing area.”

Akey and his wife will do an extensive remodel of the existing building, but hope to open their new breakfast and lunch restaurant, named Sunrise, by the first of the year.

Although there are commercial projects elsewhere, downtown is generating both buzz and dollars, as end users and investors revamp older buildings in hopes of generating more business and opportunities.

“I’ve always wanted to open my own bar, and more than anything, it came down to timing,” said Tim Babbitt, who is opening the Feisty Pint bar at restaurant at 359 Colorado Ave.

“It’s more of a neighborhood pub,” Babbitt said about the soon-to-open business.

Babbitt has already hired key people, who are hiring other staff members. He hopes to have the establishment open by December 1.

The city planning office is currently working with another property owner who hopes to open a brewpub on S. Second Street.

Pitkin Avenue is also seeing redevelopment with an office building at Sixth and Pitkin changing hands and getting attention from new owners, and the office building at Second and Pitkin also getting a makeover.

“It was attractive, it was downtown,” said Tony Englbrecht, one of the partners in the building at 215 Pitkin Ave., “and it was a free-standing building with it’s own parking. Downtown growth is heading south with the new hotel and renovations at the train depot.”

The historic former train depot’s owner, Dustin Anzures, is in discussion with prospective tenants, as well as contractors and tradespeople, to create the best use of the historic Grand Junction Depot building.

“We want to do the very best job we can,” Anzures said, who is looking for a local restaurant tenant to make a commitment on the location prior to finalizing plans on the building.

“We have high hopes of doing something with this building,” Anzures said, “creating something that doesn’t currently exist in the Grand Valley — a historic, landmark building that’s been repurposed. We want ours to be a happy place.”

Anzures also hopes the depot will get a safer and more pedestrian-friendly connection to Main Street and the rest of downtown when CDOT finalizes its plans for the Pitkin curve at First and Pitkin. He believes that a more pedestrian-friendly route would bring train visitors who are passing through on the California Zephyr into the more established parts of downtown. Of course, he’d also like to create great experiences for them should they decide to hang out at the Grand Junction Depot.


After demonetisation, liquidity crunch may inflict more pain on real estate sector: Experts

Two years ago, demonetisation caused upheaval in many sectors and the real estate sector also had to bear the brunt.

The analogy was that the much diabetic sector required insulin (demonetisation) injections after which it was constantly monitored on the treadmill through measures such as amendments to the Benami Transactions (Prohibition) Amendment Act 2016, Real Estate (Regulation and Development) Act (RERA) and the Goods and Services Tax (GST).

The maximum impact of demonetisation was felt on land and luxury residential segments where prices had corrected by almost 30 per cent as these were the asset classes where maximum investors were seen to park black money. But sales started to pick up on the back of affordable housing launches, especially the government’s impetus on Housing for All by 2022 and the Pradhan Mantri Awas Yojana scheme.

When it seemed that the pain was more or less reduced with these measures being in place and real estate prices getting rationalised, the recent non-banking financial company (NBFC) crisis, triggered by the debt-pile in IL&FS, and the cascading impact on several NBFCs, caused a stir in the residential markets. Instead of ‘insulin injections’, the sector now requires a ‘booster’ dose of liquidity from the government, say experts

Preceding the recent financial turmoil, a wave of structural reforms had swept the real estate landscape. “Just as the market appeared to be gaining some strength, the aforesaid financial shake-up has caused a rewind-like situation amongst the financial community,” said Arvind Nandan, Executive Director – Research, Knight Frank India.

The NBFC cash crunch has had a cascading impact on the somewhat improving residential real sector. “This is primarily because for last few years, developers had been availing term loans from NBFCs and Housing Finance Companies (HFCs) and any turmoil in the latter is bound to impact the Indian realty industry. Further, at a time when the festive season fervour and loan melas are expected to boost residential market sales, the state of financial markets is likely to play a vital role,” he explained.

Post-demonetisation, land prices that were inflated due to black money deployment had come down drastically, corrected by almost 30 to 40 percent. Prices of luxury real estate projects corrected by 30 percent and there was no appreciation for almost three years. “Today, the sector is suffering from a new ailment (liquidity crunch) post the NBFC crisis. Earlier, an insulin injection of demonetisation was required to reduce the deployment of black money in the sector. Now we need a booster dose of liquidity from the government,” said Pankaj Kapoor of Liases Foras, a Mumbai-based real estate rating and research firm.

The next steps should include rationalisation of tax structure and stamp duties and electronic registration of properties. While GST on affordable housing has been reduced to 8 percent, for other properties, including under construction projects, it is still 12 percent. This, say experts, is an impediment for home buyers who are preferring to buy ready-to-move-in properties that do not attract GST.

“The government must look at rationalising GST. Stamp duties and registration should also come under the ambit of GST. The government should consider tax incentives for real estate developers who construct buildings faster and introduce a vacant land/inventory tax,” said Kapoor, adding this will help boost the economy and the real estate sector at large.

Samantak Das, chief economist and head – Research & REIS at JLL India, is of the view that the impact of “demonetisation is behind us. While the sector is still getting used to regulatory framework of RERA and GST, after the NBFC crisis, the problem that the sector is now facing is to do with cash flows. There is pain in terms of cash flows. Private equity funds have also become cautious and their cost of capital has gone up slightly,” he said, adding the problem may plague the sector for a quarter or two.

“Down the line one will also see many global warehousing players investing in the country. There is a perceptible shift from unorganised to global players. This may also help boost the market,” he added.

Finance Minister Arun Jaitley said demonetisation resulted in formalisation of economy and increased tax base, prompting the government to earmark more resources for the poor and infrastructure development.

In a Facebook post on the second anniversary of Demonetisation, Jaitley said in first four years of the National Democratic Alliance (NDA) government, the number of income tax returns filers has gone up to 6.86 crore from 3.8 crore in May 2014.