Hi, welcome to Invest in Preleased. And today we are talking to Mr. Shiv Parekh. He’s the founder and CEO of HBITS. And we’re looking forward to having a great chat about the fractional real estate ownership space. And with that, welcome Shiv. Thanks. Thanks Raj. Thanks Rishi for having me on board. Yeah. And I’m happy to introduce, Shiv is a MBA from Harvard Business School. He has a BS in engineering physics from Stanford University. He’s got work experience at Citi and Stanford Management Company. He also has a real estate development company called Raycon. And he’s a serial entrepreneur. He has established a co-working company called Workloft as well. And I would also like to highlight that he’s been awarded the Forbes Asia 30 Under 30 2022 award.
along with business world disrupt 30 under 30 2022. We are very glad to have you shiv and congratulations on all the awards. Thanks. Thank you. So with that, we’d like to ask you our first question. As an asset manager, it’s a difficult task shortlisting properties because there is a limited amount of good quality supply. So what are the chief factors that hbits looks at while shortlisting properties? No, I think Raj, this is, In fact, the most important question I think you can ask across all the questions you’ll ask, because what asset we list, what product we bring on the platform ultimately determines what kind of, how well our investors do in that investment. That is the crux, that is the heart, that is the engine of this business.
And so to touch upon our philosophy in terms of the way we bring assets on the platform, we are extremely selective. In fact, if you compare us to other players, we’ve been much more concentrating on quality over quantity. We only like to bring the best assets on the platform. So first, just to talk about the start, which is the sourcing, right? First is how do you get assets to even look at? Because once you look at many assets, then you can select the good ones. You at least have to look and analyze each and every asset. So firstly, we have a very strong team in-house. We’ve gotten a chief investment officer on board, Mayank, who has a wealth of real estate investment experience.
He comes from 15, 18 plus years of experience, worked at real estate investment funds like Everstone, Indospace, Logos. So has that experience in investing in real estate. Under him, there’s a team as well. So that team is why I was looking at the numbers. Over the last six months, they have sourced about 10,000 crore worth of assets from around the country. So we looked at 10,000 crore worth of assets, approximately 2,000 crore a month. We were doing this analysis. That is the overall what we look at. And then finally, this is the asset that we have right now launched in Boomerang with Cycle as the tenant. That’s the asset we have now. To talk about the parameters we look at specifically, obviously building quality of construction is extremely important.
And that’s obviously where the development background comes in as well, being in real estate development. We can look at the quality of construction, whether it’s the HVAC, whether it’s the lifts, what kind of amenities are provided to the tenants. We’re very particular on that. So that’s number one. Number two is obviously the tenant that’s occupying that property. You have a better tenant. You have a grade A MNC tenant. There’s more surety that they’re going to be stable. They’re going to be there for the long term. So in the property we have right now, Sightel, which is an American MNC, $10 billion company, so can’t go wrong. But other is not just the name of the tenant where they have the ability to pay, but also what their rationale behind that space is.
Are they going to be there for the long term? So again, I’ll use the property we have right now as an example, because it will explain people better. So this property we have right now, again, they’ve already been there for 10 years. This is their fifth renewal, third renewal of five terms showing their stability. This is their India headquarters. They have three other offices in Bangalore, Chennai, Gurgaon. But here, this is also one of five units in that building. They have two to 3,000 employees. So they’re very, very stable and sticky in this property. So that’s the other thing we look at. We also look at the micro market. So this micro market, which is basically between Powai and a very established micro market, people from Mumbai will already know what a core market it is to the city.
But for people not from Mumbai, it’s a very important market because it’s obviously on the, between Western and Eastern expressways, you can get the accessibility is easy. It’s very close to the international airport about this three kilometers away. So travel is easy, especially being an MNC. So global leaders keep coming. So again, we look at the micro market. We look at the lock-in in the contract. So in this case, four years left in the lock-in shows the intent of the tenant. So for four years, at least the rental is guaranteed. But even after that, how do you ensure the rental is guaranteed even post four years? So there we do the rental and rental value benchmarking. So we look at the rental that’s currently there and we compare it to each and every other rental in that building plus other buildings.
And we make sure that it’s below the market average. So even if the tenant leaves or we’re renegotiating, you’re able to get at least the current rate because it’s lower than average. So any tenant will want to buy that space. And then finally, we look at the capital value on a per square feet basis. We make sure that’s also in line. We study the replacement costs. So what is replacement costs? Replacement cost is if someone had to buy land, build a new building from scratch, how much would all of that cost? And is the per square feet rate, if it’s below that, then it’s a very attractive asset to buy because any new building is going to be more expensive. If it’s below, then it’s a red flag and then we won’t pick it up.
And then the last thing, obviously, we look at after looking at all of this is look, we look at the yield, which is the final negotiation with the seller of the asset. We make sure that our investors do get a good yield for the asset. So these are the major parameters, Raj, that we look at when we’re picking up an asset. And we’re only able to check each and every box, like I said, if we look at enough assets. Correct. That’s quite a stunning number, 10,000 worth of assets in the last six months. That’s a lot of effort. And I think it clearly shows the kind of asset now that you’ve brought on the table. I have a question related to what you spoke about as a, since you’re also a developer.
So from that perspective, when you’re talking about the grade of asset, if you were to be, if you’re wearing the developer’s hat, what are the key things that you would look at? And if you could put in some sort of benchmarking, let’s say for example, in a grade assets across the world or in, in, in our country, is there a, What are the benchmarking in terms of, let’s say X number of lifts versus people number of is lead certification important, important and those kinds of things. Yeah. So it’s, there are many, there’s a, there’s a full checklist and I’ll touch upon a few of them. Starting from your things like say the way you start with, which is the office that you’re occupying.
Now are the toilet, a lot of older offices had toilet blocks outside. So are the toilet blocks within the office premises? What is the number of toilet blocks per square foot of the office? What is the floor to ceiling height? Because obviously the higher the floor to ceiling, the more occupiable it is for the tenant. What is the distance between the columns? Which again, because the more distance there is between the columns, it creates a more open floor plan instead of having pillars in the middle of the office. I’m speaking at a very practical, you know, so that’s number one. Then what is the number of elevators per number of employees that are occupying the building or per square foot of the building?
That is something we look at. What is the parking ratio? Number of, yes. Could you tell us what is that right ratio of, square feet to bathroom, square feet to lift? I think, see, I think that depends a lot. That depends on that micro market and that building. You would have a different number for BKC because it’s a front office destination versus Navi Mumbai, which might be more of a back office destination. You have to look at it along with who the tenant is occupying it, what is the building. So it’s hard to put an exact number, but I’ll give you one number. For example, in terms of parking ratio, a great parking ratio would be thousand square feet to one. So that is something that’s very important.
That’s a little bit more standardized across the different micro markets and different buildings in the city. So do you have that kind of parking infrastructure available? You look at, is the parking a stack parking or is it a one on cars on top of the other? Is it a mechanized parking where a car goes into the building right into the full system or is it you have open parking? The preference is open parking because then you don’t need to wait for your car to come down. A mechanized parking, the car goes, it’ll take, might take some buildings, it takes 15 minutes for it to come. So it’s not the ideal. So again, you look at these kind of parameters and then yes, you mentioned in your question, LEED certified.
It’s very, very important. I think especially all the MNC tenants require a certain level of certification because again, this whole push around sustainability environment, they have their global mandates and rightfully we have to have a, we have to be sustainable. And so it’s very important for the building quality to be at least gold LEED certified, if not higher. Great. That was an amazing analysis. Yes, I would want to touch that again, because that’s a humongous number to look at. And this shows in terms of what kind of efforts are being put behind any asset that is being brought on equities. So Shiv, that was an amazing insight to the kind of assets that you guys are bringing on the table. 10,000 is an amazing number to look forward to.
I have two questions for you following up what you have shared with us. One, now, how do you foresee exit for any particular opportunity? Right now we are discussing the cycle opportunity. So I’ll be more than happy if you can discuss or throw some light on that. And a following question to this is how long would you or HBITS as a platform would like to hold an asset? and would you would also collectively look at an exit of entire portfolio or just this one single asset? So all in all, that’s how we are. No, obviously see exit is the most important thing for anyone. Um, because that’s how you get your appreciated value back. And I’d like to start by saying exit is a function of your entry.
If you enter at a good price and you do good due diligence, you’ll be able to exit. That’s number one. So you have to look at all the I think the first question that we discuss answer that you’ll be able to exit at a good rate. So that’s number one. Number two, how do we plan on exiting? So overall, the plan is you look to exit in a four to six year time period. And I’ll go a little bit deeper in that. But before that, sometimes investors want to exit prior. They have their own requirements, some emergency, some family, education, medical. And we facilitate that as well. Investors, we already have multiple investors who’ve exited because of their own requirement in a year of holding the asset, year and a half of holding the asset.
And we have 50,000 users on the platform. Yes, Raja. What will be the typical turnaround time for when an investor says that, okay, I want to exit in how much time does HBITS on an average help them exit? Generally about a month or so is what you can exit your share in. Then ultimately it also becomes a function of price. If someone wants to fetch a higher price than he got in, then it’ll take a little bit longer. But we have 50,000 users on the platform, a lot of partners that we work with. So investors are able to exit their share. Other than that, in two years, what we want to do is we want to create a model where we as HBITS are able to offer an exit to investors.
So we’re working on that. Hopefully in two years, that should be in place. But to be honest, if you really want to capture the appreciation in the property, what you’re actually in it for, then this is a long-term investment. So the real appreciation will only come after several years. You get the escalation and you get that change in the interest rate environment where it’s a low interest rate in. You get the tax benefits because only the long-term capital gains in this model is only applicable after three years. So that’s why we look at a four to six year horizon. In terms of options to exit, there are multiple buyers. In fact, we’ve already exited one property in the past at 17 and a half percent higher.
And the universe of buyers are, there are ultra H&Is who are looking at this asset class, especially in Boomerang, you already have a lot of ultra H&Is. So that’s a very natural exit option for this property. There are funds, AIFs that is assets in this range. And I think the other question was, would you like to club all your assets? That’s one possibility we could look at. Depending on the market at that point in time, you club all the assets and then you put it into a larger fund or a REIT and exit in that mechanism. See all these options, whether it’s to ultra HNI, whether it’s through fund, whether it’s clubbing your assets, those are all well and good. All these options work if you entered at a good price.
Coming back to what I said earlier, then if you entered at a good price and then therefore you’re able to exit at a good price, four to six years down the line, then everyone will come and want to buy a property. Then you’ll have a universe of buyers. As long as the property is good, your tenant is good, your building is good, your price is good. Then the number of kind of people who can buy your asset, the universe is larger. If you entered at a bad and also something wrong with the acquisition. So what I was saying is that all the options of exit, whether it’s ultra HNI, whether it’s to a fund, whether it’s clubbing the assets into a REIT, all of that will be there if it was a good price.
And if it was a poor price or a poor asset in terms of tenant building, all the things I mentioned earlier, then none of these options would be there. Ultimately, it’s how you enter and what you enter into that matters. There’s a lot of talk around tokenization, blockchain. Everybody is aware of cryptocurrencies and what they have done. And of course, we have extreme opinions on whether it should be done or not. But the intersection of fractional real estate or real estate per se, because it’s asset backed, because with cryptocurrency, the argument is there is no asset at all. There is no real asset. So how does this intersection is, we believe it’s an exciting thing, but we want to know from you, what do you foresee as blockchain and tokenization affecting fractional and how and when will HBITS adopt this?
Yeah. I think this is a very exciting conversation that people have been having for the last couple of years. And rightfully, it’s a very exciting space to be in. And there’s a lot of technology that is applicable to fractional ownership, but it has to be done in the right way and in the regulated way. But I think exactly like you mentioned, the benefit of this versus the crypto universe, this is asset-backed. There’s still a hard asset behind it. When it will happen, and I’ll give you where it benefits the industry, but when we are working on it, we are, in fact, we have couple of IIT Bombay professors who are advising us, but ultimately it’s a question of regulation and the regulation has to evolve to support it.
And I think the regulators are aware of that and they are working positively towards it. In terms of where it helps in multiple different ways, one is from an investor perspective, it makes their investment, you’re able to really, the paperwork to own the property becomes significantly simpler. While we do all the work at the backend as HBITS for the property manager, But the investor becomes a much more seamless process. Because of the tokenization, you’re able to reduce the ticket size further. So you can get a larger number of investors to own the property. And the transparency is much higher because you have the full history, not only once the fractional ownership starts, but I know a lot of other companies, what they’re working on is the full title, the full history of the title of the property will be put on the blockchain.
So your legal due diligence becomes much simpler. You have much more clarity. So that security on that property is there. So I love these ways in which organization of blockchain can make the whole process of ownership much more smoother, a smoother, much more transparent, and therefore much more. And that leads to a lot more safety in the investor’s mind. And rightfully. Do you foresee that it will also have help liquidity? Because one chief concern that we get from investors is the fact that what about my exit? And of course we tell them that, look, the asset manager will sell the asset or you can Come back to us, we along with the asset manager will help you sell. But do you foresee that if tokenization happens, the turnaround time for exiting is going to be much faster and quicker?
No, absolutely. See, because and for the reasons that you’re just discussing, the turnaround time is quicker. If your ticket size is lower, there’s a larger universe of buyers. So it just facilitates a much more smoother entry and exit. And then the paperwork becomes just a few days worth of paperwork. So you can easily just exit your share or rather no paperwork and it’s just fully digital. So it becomes significantly quicker and easier to exit. So it will help liquidity in this market. Would you be creating your own platform or system or would you, if there was an option of hiring a service that enables HBITS to offer tokenization? No, we’re looking to, yeah, we are looking at building this in-house. It’s very important to understand the nuances in-house to have that technology in-house because again, we are very focused on the, if you do go outsource it, you never really know what you’re getting.
And so, because it’s a very, it’s actually the tracing the ownership of the individual. It’s very important to have that in-house. Okay. In that case, would you be open to, let’s say, for example, we have an investor has a couple of assets and is willing to maybe get into tokenization of that. So then would it consider doing this for H and I properties? No, those are two separate. Those will be two separate things. Oh, you’re saying doing it for the, that specific H and I. Yes. To hold their own. Correct. So that’s something can be looked at. Obviously, again, it’s a question of first the regulation evolving to even permit that from a legal level. Right now, owning a token in a property would not be valid ownership of that property because regulation doesn’t permit it.
Once the regulation evolves to permit that, then obviously then all the options are open. Sure. So Shiv, we have something next coming up for you is a very exciting thing is happening at Edgebit and we would like to know a little more about it. I think We heard that which is looking to get a cat license for investment purposes. So we just want you to throw some light on that. So what are you guys doing with that? Yeah, so no, exactly. Rishi, we’ve applied for an AIF with SEBI. It’s in process. So we should get the application approved probably within the month is what our lawyers tell us. So that’s very exciting. And we’ll be concentrating through the AIF. We’ll be concentrating on similar assets.
We’ll be doing pre-leaded assets. but there’s also a certain section we’ll be investing in under construction. It’s a 500 crore AIF with a seven year time horizon. The advantage of the AIF is the investor puts in the funds and then we are able to invest it. So you don’t need to keep going back to the investor because a lot of investors tell us that why don’t you just take the funds and invest it as you see fit, but the current model doesn’t permit that. So with this model, we’re able to take the investor’s funds and we invested in the basket of properties that we bring onto the table. So for us, it’s very exciting. We’re also able to target foreign investors as well through the AIF model.
Right now we’re targeting only NRI investors, but we’re talking to foreign direct investors, foreign funds to invest in commercial real estate. And then on, like I said, on the asset side, we won’t just be doing pre-lease. We’ll be looking at under construction assets as well. Fantastic. So would this fund be a category one or category two? It’s a cat two, cat two fund. Cat two fund. All right. And the minimum entry ticket size would again? One crore. One crore. could you tell us the difference between a cat one and cat two? For real estate, the cat two is the only vehicle. The other cat one and cat three, basically a lot of them are open-ended funds, more suited towards public equities where you can pull out at any point in time, put in fund at any point in time.
With this cat two, you raise all the funds first and then the investor really gets his fund, the return at the back end. You can’t really exit at any point in time that you want. Just a follow-up question to this, along with edge builds when this fund is active, so the fund will also participate in investing in the previous assets, which will bring on the platform or it will be a separate focused only for under construction. So you look at pre-leased assets, whether it invests in the same pre-lease assets, they see they’re completely separate or investments, they’re completely separate teams, they’re different investors. So it may happen. It may not happen. That depends on the investment focus of the AI fund manager vis-a-vis the fractional be obviously a completely separate entity.
So Shiv, what do you foresee the role of advisors? or channel partners when it comes to selling fractional and maybe eventually when you even get your CBI license and what percentage of your current business comes from channel partners and how do you expect that to it to unfold in the next five to seven years? Yeah. No, see, channel partners are our partners in business. So they’re very important to us, very dear to us. In fact, we’re having a channel partner meet on Wednesday. Hope you guys and other partners attend as well. Yes, we are attending. Yes. But in terms of where our partners, the simple answer would be they help us get customers, but that’s not the case. The case is one, they help educate customers about this concept.
They are also are yours to the ground in the sense that if there’s any customer feedback, even before launching the property, what kind of things our customer are looking for, they help us that they guide us that what investors want. So we can select properties accordingly. They educate customers of the concept. They help us not only once, but also after that, in terms of the whole investment process, where there’s a lot of sometimes education required, not just of the product, but also paperwork, et cetera. And then post that if a customer has been with us for a year and then any questions, because for us, it’s ultimately the customer service that matters. It’s how you, how you, how your customers are doing, not only from a return perspective, but what kind of information you’re sharing with them, what kind of knowledge you’re sharing with them, even after they’ve invested.
And again, that’s where our channel partners come into play to help us and to support us on that side of things as well. In terms of what kind of business we get from channel partners, 50% of our business is through our partners. Whether they’ll become 40% or 60% in the future, I’m not sure. But see, today we’re at 150 crore AUM. We want to touch 1,000 crore in the next 12 months. So the overall share grows anyways, because then maybe 500 crore will be through channel partners instead of today, 75 crore channel partners. Right. So there’s a good pipeline of work for us. Absolutely. So that’s great. And if you could tell us what are the two or three key things that you look that you think a channel partner, an ideal channel partner brings to the table, you’ve already mentioned the education, but anything besides that?
I think, I think what, I mean, no, To be honest, education is the main, and I’ll touch a little bit deeper into what that education means is that really being able to, I think, educate in terms of, again, coming back to that first question, the asset evaluation process that someone like HBITS has. What’s how someone should look at different properties that are offered? What are the pros? What are the cons of certain property? Because obviously partners have a tremendous amount of experience like you guys in real you have a pulse to the ground you know what’s going on so that transparency to that to the client is obviously very important and then like i said the reverse feedback as well not only communicating what we are doing to the client but also reverse way communicating what the client wants to us where we are also a growing organization and in fact not only us but any organization always has to learn from their customers whether they’re
a one person organization or whether a thousand person organization. And so that level of feedback coming back to HBITS as well is very important from our partners because obviously we recognize that our partners have much more historic relationships with their customers. And so getting that feedback from the customer through our partners is very important because it helps us improve as an organization and helps us build out features, not only get products or properties that customer wants, but also features say on our dashboard or features that will enhance the customer experience. That kind of feedback is also where the channel partners do come in. So ultimately everyone in the ecosystem benefits. So Shiv, again, two interesting questions for you. So we know that we started way back in 2019 and this would be the fourth year in operations.
You will complete four years this year. How has been those amazing four years? And yeah, prior to that, I would want to ask you one question. Why the name Edge? Because a lot of investors do ask us as to because you see a lot of other sre platforms having some or the other real estate yeah added to it. So what’s the hard process behind it Yeah, so that’s a uh good question in fact as a there’s a little bit of, whenever someone new joins our organization, the person, new person who joins also made to guess that where does his name come from? No, so we, I’ll tell you where it comes from. And we followed the two sides to it. One, obviously wanted something catchy.
They’re looking for words, brainstorming. And generally, very short words are more catchy. It’s easily Google-able. There’s no competition on Google when you search HBITS. It’s a unique name. That was one. And we were brainstorming of different words. And so where HBITS comes from is the FRE platforms have a little bit more real estate in their names. We have a little bit more tech in our names. And I’ll tell you what that means. So H is the eighth letter in the alphabet. And there are eight bits in a byte in computer science. So as many bits make up a bite in the same way, many investors own one property. That was very interesting. Very interesting. Yeah. So this interesting insight, the next question follows is what do we look for 2024, 2023 to 2024 in terms of fractional real estate?
One, how is the platform evolving? And two, how is HBITS going to evolve out here? Yeah. So in HBITS, you know, I’ll tell you first what HBITS is and I’ll tell you what I think about the overall market. In terms of HBITS, we have our targets because now we sourced a lot of properties. So we’re looking to bring on board 30, a thousand crore in the next 12 months, both the properties and primarily across the top six cities, namely Mumbai, Pune, Bangalore, Hyderabad, Chennai, and NCR. So that’s our focus in terms of the kind of line of assets that we have. And along with launching our AIF, which is a 500 CR. That’s Just on the number side, in terms of how I see the fractional real estate marketing evolving, one, if you look at the overall global macro factors, now we’re reaching that peak of interest rate.
I think expectation now is that RBI will just raise once more and then be stable similarly with the Fed. So we’re really reaching the peak of interest rate environments. And what I mean by that is, see, last year we held off on really aggressively picking up any assets because we saw this rise in interest rate environments. Now that it’s peaking and the effect of that is felt on all the current owners of real estate, you’re going to get a lot of good assets coming into the market to be sold at the best price that you can possibly acquire it at. Because now interest rates won’t rise further. So it’s the best time to get in as that cycle changes. So basis that we’re seeing some lot of attractive opportunities and good pricing come into the market.
I can’t comment on other players, but we are seeing that definitely right now. But I think that we felt across the overall fractional industry. So that’s number one. Number two is the, I think, 2000 point of the overall fractional industry. A lot of players were focusing on growth in the last two, three years. I think now a lot of focus will also be on customer service. How do you service your customers and investors that are already existing, that are part of your platform? And that comes in two ways. One is, there are two sides to it. One is actual, there’ll be a lot of properties because now players have multiple properties in case they are anywhere. And then what is the strength of that player to be able to release the property?
For instance, we have, because the development background, we have great connect with the IPCs who do the leasing, the HR heads, admin heads of all the large companies when you want to release your property. So that becomes very important. So I think that differentiation between the various different players of how they service their properties and therefore their customers. So that’s, and the other level of customer service is what kind of information updates you provide to your customers on the platform. So that’s the second overall evolution you’ll see in the fractional industry. And then the third is digitization, maybe not to the level of tokenization we discussed earlier, because I think there’s a little bit of regulatory hurdle there, but Still additional digitization into ease of customer onboarding in terms of answering customer queries.
One thing I do see is that, and I think all of you might be following the news, but the way where AI is going, a lot of players will now have AI on their platform to be able to answer the customer queries. Those kinds of small digitization that really enhance the customer journey. So that’s something that you really see across all the platforms. So really technology being implemented to a much significant way in fractional ownership. Super. With this, I would want to touch one more point. What are the three things, that you would feel you would want to share as an insight to our viewers in terms of the entire FRE platform and apart from the way the things are evolving, but three insights that you feel that should as an investor or a first-time investor, one should definitely keep a track of.
Yeah. So one should, I think as a first-time investor, you should definitely keep a track of the credibility and the background of the partner that you’re investing through if the property manager. So what we like to tell our investors is that we have a lot of background in commercial real estate, not in terms of just acquiring a property, but what your experience in leasing out properties and exiting property. So that is very important. You have to ask the right questions to figure out the background of that person, whether they’ll be able to have the investment flow through, not just entering it, but also exiting it. So I think that is the most important component. And then number two, what I’d like to share to the investors and the potential investors, first-time investors is also have a longer term horizon because that’s when your appreciation and your real returns really kicks in.
And number three is get educated, ask the right questions, ask the difficult questions to whoever whichever platform you’re investing through, ask them why this tenant, why this building, you know, all the things that i mentioned, because any platform should have done that research. You have to ask the difficult questions. That’s good. That’s a good one yeah yes
