Development of Commercial Office Space at Premium Location in Gurgaon

Opportunity Snapshot

  • Country: India India
  • Industry: Real Estate
  • Stage: Start-up
  • Investment size: $8,000,000 / min. $8,000,000
  • Type of investment: Equity

Investment Opportunity

This project is to develop 2 acres (9680 sq yards) of prime land at the commercial hub of Gurgaon. The investment payback period is 3 years.

This is absolutely prime area at Golf course road, where demand for office space far outstrips any supply. The ROI on this project is over 100% (over 3 years). In the first year itself entire capital is expected to be recovered with a yield 44%.

We have a real hot commercial property in Gurgaon at golf course road. This area is an absolutely prime commercial area. The property consists of 2 acres (9680 sq yeards) or land. Adjoining development has been completed and has been in use for the past several years. The owners have built and leased out/sold the rest of their land and this relatively small parcel has remained with them which they had intended to some other use.

The owners are now no longer interested in developing this themselves and have appointed us as the exclusive agents to dispose of this land. We have done our research and have drawn up a preliminary project plan. As per the plan the total cost of this project is $14m, and the net sale receipts would be $38m, the sale receips are calculated based on market survey at at conservative estimates, with no advanced assumptions on likely appreciation, i.e., it is based at current prices in the market, and that too at the lower strata:

(all amounts below in $,m)
. Year 1 Year 2 Year 3 Total
Costs including cost of land (9.00) (3.00) (2.00) (14.00)
Sale proceeds (net) 13 9.00 14.00 38.00
Net inflow 4.00 6.00 12.00 26.00
ROI 44% 200% 600%

Thus the overall profits in 3 years for this project is $26m over an investment of $14m. The maximum investment at any given time will not exceed $9m, as sales receipts in the latter part of year 1 and in year 2 and 3 will negate the need for putting up entire project cost upfront.

The total permissible development of this area is 150k sq ft, and the saleable/leasable super area is 180k sq ft.

The lease rates in this area are currently at $3 for bare shell per sq ft, which translates to recovery of entire project cost in 2 years, or recovery of sale price in 5 years.

Competitive Advantage

The locational area where this project is situated is absolute prime commercial area. This is known as the golf course road in Gurgaon, and is a hub where several international corporate houses have their offices.

Demand for office space at this location is virtually unsatiated at any given point of time, and with over 95% of the available land having been developed and sold/leased out, there is no new supply possible for commercial space in this area. Firm demand for 180k sq ft which is the super area to be developed is expected to materialise within weeks of advertising the project launch.

Thus there would be virtually no competitor in this immediate area, and the nearest area which is under development currently is golf course extension road.

Rationale for the deal

1. The entire first year capital ($9m) is expected to be recovered in the first year itself, with a first year likely recovery to be capital + 44% ROI.
Almost all real estate projects in India work on these principles only. There is still ample scope in the area for the next 5 years or so, so even if a company wishes to set up operations in India now, we can assure many such projects in the future. Of course, entry to foreign players is restricted at present but investment is possible in certain ways which we can suggest and enable execution.

2. Contrary to general real estate play, we specialise in deals which are transparent and above board, and adhere to corporate governance standards. All our projects come with controlling ownership (for instance this one comes at near to 100% controlling stake), and bear very little risk on account of partners, or agents as we do not encourage any money to be put onto the table unless entire due diligence has been completed, and favourable legal opinion has been received from reputed legal firms.

3. As discussed above, the current demand without any supply has ensured that the golf course extension road projects are selling at about $ 225/sq ft, and our project has taken cash inflows at this rate only, which is a virtual given and if we arrange to sell it at these rates, then it would be sold fairly quickly.

Use of financing

The investment is needed to kick start the project. The initial investment would be needed to buy the land and get all related approvals. In case you do not wish to buy the land, we can arrange for a joint venture where the land is owned by someone else. However, this being a very small project, it is preferable if only one party owns the entire project. Any further division to this small project which would be a very hot one, might create conflicts of interest so we do not advise breaking this up between jv partners.

We are project sydnicates and are in the space of identifying and selling such projects for a commission of upto 5%. While we can arrange for all logistics, legal clearances, contractors, etc, we by ourselves do not develop projects and sell these to anyone who has the investment capacity and is ready to pay us our fees. We have several other small and large projects (some as large as 350-1000 acres) and earn our revenue from the commissions we receive from prospective developer.

The desired investment installment schedule is provided in the year wise investment table above.

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