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Problem is not with the realty market but with the players: Siddharth Yog

Raghavendra Kamath/Mumbai 08 Nov 12 | 12:48 AM

The Xander Group, the institutional investor backed by the Lord Rothschild family and RIT Capital Partners, among others, has been one of the most active investors in Indian real estate in the past two years. It has emerged as one of the top two realty fund managers in the country, with $2 billion (Rs 10,000 crore) of capital under management in real estate and infrastructure. The group is set to invest Rs 800 crore in the real estate arm of the Indiabulls group. In an email interaction, Siddharth Yog, managing partner of Xander Group, discusses the investor strategy and plans with Raghavendra Kamath. Edited excerpts:

Xander Group has made a number of PE and debt deals this year . What gives you the confidence to do so many deals?
We have been actively investing in India since 2005. Over the last eight years or so, we have been evenly paced, except in the latter part of 2007 and the early part of 2009, where we sat on the sidelines as we just could not see the value because the market was overheated and unrealistically (and unsustainably) buoyant. Perhaps your question arises because we are more visible, as most other players seem to have wound down. They have either lost capital for their investors or are still to generate any meaningful returns from assets and portfolios that are illiquid, highly levered or caught (and rightfully so) in a regulatory quagmire as the law of the land was broken.

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We are not growth investors. Rather, we are value investors. As a result, whether the market is slowing or heating, we are always looking for opportunities where we believe there is a mismatch between the fundamental base value and the market price.

What will be Xander Finance’s strategy when the cost of capital is expected to reduce and the availability of funds is likely to increase for realty developers?
Xander Finance’s ambit is not restricted to realty and the firm works across sectors and industries. Given the pedigree of Xander Finance, it’s natural that the team started in a sector where it feels more comfortable pricing real estate risk, since that is embedded in the DNA of the firm. Xander Finance has consummated deals in other sectors like ‘edutainment’ and is looking across sectors that are currently liquidity-constrained.

How much do you plan to invest in Indian real estate in the next two years?
It completely depends upon the quantum and nature of opportunities we see. If interesting and attractively-priced opportunities continue to be available, we will be active investors and if we believe valuations are unattractive or the pricing does not justify the risk being taken, we will adopt a wait-and-watch attitude or try to find opportunities that may be more complex, out-of-the-box, or simply ignored by others.

Are you looking at any new funds for real estate, hotels or retail?
We have just closed a new fund focussed on more mature assets in office and residential projects, where approvals are in place and price discovery has happened. We also have the Virtuous Retail platform which is looking for new equity opportunities, either for joint ventures or 100 per cent greenfield or brownfield buyouts in the retail mall/shopping centre anchored mixed use project space.

Finally, Xander Finance is cash-rich and looking to undertake fixed return-type deals where counterparties are cash-constrained or are looking to pay high-yield coupons for acquisition or take out financing because they do not want to dilute equity.

Your outlook for the residential, office and retail spaces?
Since 2005, the top seven cities in India have seen the commercial office market grow from 60 million sq ft to 310 million sq ft, with 30-40 million sq ft being absorbed every year. In residential in the same cities, there is 250 million sq ft being absorbed every year. Yet, developers claim they are losing money and investors have been unable to generate returns. The problem is not with the market but the players in the market — developers who do not want to create value through actual development and see windfall arbitrage only in quick fixes and a nebulous entitlement process, and investors who instead of doing the hard work of analysing fundamentals are just betting on leverage and growth (or both) to generate returns.

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