ISCF’09 scans the shopping centre funding & investment scenario

30 May 2009

The mistrust between retailers and developers is a major deterrent to funding and investment for those who may be looking to invest in retail real estate in India - addressed in one of the sessions as a key aspect in the ongoing India Shopping Centre Forum in Mumbai.

Commenting on the impact of economic slowdown on real estate funding, one of the expert panelists Nandini Chopra, MD, KPMG said that although there is a general change in the mood, funds are relatively not comfortable with stand-alone shopping centres and are more open to mixed-use projects.

With reference to the shrinking share of the retail real estate in the overall real estate pie, V Hari Krishna, director, Kotak Realty Fund observed that the incremental credit is going to flow into residential. He spoke with a 3-4 year horizon and said that as the balance sheets improve the things will change for better.

Phil McArthur, SVP, Ivanhoe Cambridge (India), expressed his concern over the whole notion of finding retail real estate difficult to understand. He said the problem emanates from a lack of transparency. Being an active pension fund, Ivanhoe Cambridge is willing to invest around USD 50-75 million for India with the right JV partner this year and is prepared to wait till the board is convinced and confident about the prospect. The company has invested between USD 1-2 billion in acquisitions and redevelopments globally in the past couple of years.

Stressing on the need for transparency, Ramesh Shah, advisor, Ambience Group said that retailers should come with clean figures and not try arm twisting tactics for rent reductions. If the developers have to bleed, they would rather choose to build office and residential instead of malls. It takes time for malls to take off, so a minimum guarantee is needed.

Kishore Bhatija, CEO, Inorbit said that the model of minimum guarantee or revenue share, whichever is higher works. But retailers pressing for low minimum guarantee and a revenue share model raise a lot of revenue issues for the developer. Sanjeev Dasgupta, MD Future Capital Real Estate observed that Indian retail real estate industry is a transitional phase. While revenue share is a successful model in North America, there’s limited operational history in the Indian context and hence the comfort level is not arrived as yet. It would take about 18-24 months for things to start looking up. In fact, from the churn perspective, tenants in shopping mall are not likely to default if they are doing good business.

To win over a renewed interest in this asset class Sanjay Verma, executive MD, South Asia & Australia, Cushman & Wakefield concluded that the retailers and developers need to move on to the next level and bring about a positive change from the investor’s standpoint.

— Soma Chaturvedi