Should you invest in #myre Capital’s Vaishnavi Tech Park, Sarjapur, ORR #bengaluru Fractional Real Estate Investment Opportunity II pre-leased to Smartworks with Groww as the subtenant? We have the answer. Call 9820855056 / 9930881999
If you are looking at earning #passiveincomeindia #passiveincome income through #realestate this is a good opportunity. Get #fixedincome every month by investing in this #fractionalownership real estate #preleased #preleasedproperty opportunity. Get the added benefit of capital appreciation too! We consider over 25 parameters when evaluating the opportunity.
Here’s a category-wise breakdown of their score/out of the total.
Asset Manager: 1.3/2
Our View: 0.25/0.25
Total = 8.5/10
Hi, we’ve rated the Vaishnavi tech park opportunity of Myre capital, where Smartworks is the tenant and groww is the sub tenant as 8.5 on 10. We are from Invest In Preleased. We help you profit from curated Preleased proposals.
📍 what do you think about the tenant? Smartworks is in the field of managed workspaces. And we have been following this tenant for quite some time. They are managing four plus million square feet of space are right now with them.
They are backed by capital and Singapore. Like we say, Smartworks plus is a beautiful tenant business model where 90% of the clients is in enterprise client, where you have a B2B clients on board which is doing the business with them. So B2B is basically business to business where you have Corporates or MNC’s which actually tie up with you for a longer tenure.
So number of seats are being actually locked by these tenants for a longer tenure. And that’s a reason this B2B model is existing and that’s a reason Smartworks is actually doing wonderful numbers as well. Like we said, that Smartworks is a very good tenant. To have, and that’s the reason we are going ahead with 0.5 on 0.5
the tenant is a fortune 500 global or India fortune 100. The reason is there were previous assets which we had come across where certain tenants which are part of fortune 500 or probably India, fortune 100.
And we wanted to give them that edge of having that tenant on board. And that’s the reason we have introduced this. Unfortunately for this case Smartworks, doesn’t qualify for this and that’s the reason we have taken away that 0.25 for this particular point.
📍What’s about the profitability of the tenant and tenant industry outlook. So the holy grail of all businesses is to make profits while they create value obviously SmartWorks is creating a lot of value because we see that they have got some fantastic tenants. Not just in this case, it’s grow, but otherwise they’ve got Amazon, they’ve got Microsoft, they’ve got the likes of OLX and all these great tenants.
So profitability is key in this case, they are profitable. They’re in fact, one of India’s largest managed offices player, and therefore it gets 0.25 on 0.25 there, in terms of the industry outlook, we understand that, the managed office space is growing significantly growing very well because couple of reasons, when COVID.
People realize the need for decentralization. People want their team members to not travel a as much. So they’re having a distributed model also because of COVID people are now worried about, if you’re, if there’s another pandemic or anything situation like that, you don’t want the entire team.
If you’re housed in one place, the risk is higher and therefore they want to decentralize plus commute commute to, the workplace shouldn’t be as much. The third thing also is the fact that , people thought boss work from home hoga, but work from, apne situation main, given our country’s infrastructure and infrastructure, even at people’s homes.
And the fact that, teamwork and all of that suffers when it’s at home. So people have realized office to jaruri hai. There are a few basic principles of working like for businesses, profitability for working. You need to have that synchronization, etc, all those things. And therefore it’s important to have.
People getting into the office. So that’s one major reason. Second is also, there’s an economic reason now if somebody was to take a floor plate of, let’s say 20,000, 30,000 square feet, they have to spend significant money. That’s a lot of capital expenditure on this space,
which is sunk into the place. . That may not, be an ideal situation because now again, with COVID people have realized that cash flows have been stressed. And therefore what people want to do is they don’t wanna spend so much on capital expenditure. They rather have managed office spaces where SmartWorks in this case will do up the office.
They do make it a plug & play system. And they pay on a monthly basis. So they deploy this capital into their business. . Which makes a lot of business sense also, therefore all in all, if you see the tenant industry, outlook is excellent and you’ll get 0.25 on 0.25
📍 will this help companies have multiple locations? People companies could spread out and, they can have multiple locations again. it’s connected to the fact that Going to the workspace, shouldn’t take so much time. So yes, it also helps people spread out their team, whether it’s in different cities or different micro markets within the city.
So with that, knowing your tenant out of 1.25 this opportunity gets 1. We now go to knowing your asset.
📍what about the asset grade? So like we have always mentioned earlier that we try and visit the asset and we have done this in this case also. We had visited Vaishnavi tech park in the month of March where BTP one opportunity was launched.
And again, at that point was under construction. We have again, visited the asset. In the month of May, and we have seen that the asset was ready, the OC was in place and people have always started with the fitout work. So like we said,
Vaishnavi is known for developing Grade A parks, and this is also one of the Grade A parks from them.
Any other market tenants in the asset? two amazing tenants apart from smartworks. You have Ocwen and you have discovery occupying multiple floors in this particular asset as well. And this adds value because you know that a company like discovery coming on board that the tenant, the asset is really worth going for.
And that’s the reason we are going ahead to 0.5 on 0.5 for this particular asset grade. Again in the video which is explaining our rating system, we have introduced this IGBC that is very important criteria for us to evaluate any asset. And we are happy to announce that this particular asset that is, Vaishnavi tech park is already platinum LEEDs certified.And that’s the reason we are going ahead with 0.25 on 0.25,
📍Does the, IGBC rating mean that the asset is going to be in a little more demand than the other opportunities and why? Oh, yes. Your exit and your releasing will become very important and very easy.
When you have an IGBC rated building, along with you as an asset, the reason being when you talk of IGBC, there are certain criterias, which a developer has to fulfill. Before you get that IGBC rating certification. Of course it, this actually climate change, which we all are facing right now. And it helps balancing that the outflows of our asset goes really low because these are energy efficient buildings.
And that’s the reason the maintenance of these buildings is little lesser. You mean maintenance when you say outflow. yes, So our flow is basically maintenance of the building and this maintenance grows really low. For example, you might have rooftop, solar mounted panels for taking care of the electricity.
And there are various rainwater harvesting. There are various other criterias, which are part of this lead certification or the IGBC certificate.
📍In this case, the occupation certificate has been received. So we are giving it 0.25 on 0.25.
📍 We have other opportunities where the OC is not received because they could be built to suit opportunities, which is customized. Typically, this is when let’s say a developer is still making the building. It’s still, the asset is still under construction and, a tenant commits that I am willing to take this, but you customize it.
It’s like customizing your own pizza in one sense. They customize the entire space for their own needs. In that case, OC is going to be a little far away. We wanted to differentiate that between a ready property and the fact that it could be a built to suit again the timelines kind of go a little haywire, etc.
So there is that slight risk. Therefore, if the OC is received, you’re gonna get 0.25 in this case, it has. So it gets 0.25
In terms of subdivision and independent access. Why this is important is because tomorrow, this is a large asset. It’s got about 30,000 square feet of floor plate.
we don’t have. Let’s say, for example, if today there are 10 people, this is a hypothetical example. If there are 10 people in the market who are looking at a 30,000 square feet of space, if you were to divide it, make maybe make it half 15,000 or if it was even further more divisible, the number of tenants could probably double or maybe even go three times or four times, which means our cycle for renting it out eventually.
Obviously we hope we get a single tenant, but we have to also plan for the future. So tomorrow. When let’s assume after five years, 10 years, whenever SmartWorks leaves the place. And if you are looking for another tenant, if you are able to subdivide it, it’s a big plus.
And therefore, we also recommend that if an asset manager is looking for space, they should consider this. So therefore, 0.25 on 0.25
📍What about the asset location? We are very bullish and very strong and definitely our strongest critics when it comes down to the asset location, because your entire profit exit leasing, releasing, that depends on the location that you’re in.
So we have assessed VTP location and we are definitely very strong & gungho about the overall that is outer-ring-road that’s coming up because you have amazing tenants in the vicinity. You have you have HCL you have Microsoft, you. Some companies and they are there present in this vicinity. The best part about this particular location is it’s a central.
It is starting out to be a central business district where you have a work life balance, where there is a lot of good residential complexes that are in the vicinity. You have schools, you have hospitals that are there in the vicinity, which adds a lot of value for the employee to move in. So that walk to work culture is actually being implemented and they can save a lot of time and create that work life balance.
And that’s the reason. And yeah, one more thing we would like to add is there’s a Metro that’s already coming up. The work is in full swing and we feel that this will add a lot more to the connectivity across Bango. And that’s the reason you would want to give a 0.75 on 0.75 for this particular asset location.
📍 What’s the big deal?. Just taking one step behind knowing the asset gets full two on two here. Now coming to the deal in terms of the transaction everybody understands that, there are a lot of parameters when doing a deal. So we start with the duration.
We expect a minimum of five years in this case, it’s nine years and about 11 months. So 0.25 on 0.25 there in terms of lock in, we expect a minimum of three years they’ve got a five year lock in, give or take a couple of months here and there. 0.3 on 0.3 there.
📍 what about the penalty or corporate guarantee? We have incorporated this to ensure that the investors are protected when they’re getting on board this clause is very simple very relatable, because when there is a breach in the contract from the tenant end, then what is the safeguard measure that has been taken to protect the investor’s interest?
Yes. Such, are you saying breach during the lock in or general? Breach during the lockin, anyone general as well. So if there is any breach of terms, any of the contract that is signed if there then the tenant is liable for the penalty clause and the corporate credit clause. So we have certain assets which had come in the past.
For example, we had. Randox from these strata and where they had a corporate guarantee from the parent company in the UK. Again, in this particular case, there is a penalty clause from the smart work end wherein if they, if there’s a breach of any terms and conditions from their end, then MYRE can absolutely terminate the agreement.
In, in this clause it’s two months of rental is not being paid subsequently then yes, MYRE definitely will terminate the agreement and for deposit will be forfeited and hence we are going ahead with 0.2 for this particular asset. in this case, SmartWorks is taking a bare shell opportunity and when they start it’ll be a fully furnished one.
So that, would that make a difference eventually when you find a new tenant or do you think that the rental, therefore, because of this unique situation will go up. So right now we are providing a bareshell unit to the tenant, that smartworks and smartworks is going to furnish the premise definitely when a tenant is adding value to the there is a little less likely chance of the tenant moving, or unless there is a very strong or a very uncontrollable situation that arises for the tenant. And it adds value to the landlord or the developer or the owner of the premise because you have very fully fitted out premise that is in possession with you. And definitely the Capex goes real low for the tenant. Who’s moving in as well. When the smart box moves out, And that’s the reason it’s a value addition.
📍 Registered agreement or a registered agreement to lease or an LOI that is Letter Of Intent. Now we have had experiences in the past where the assets have been bought purely on the basis of LOI signed. LOI is a letter of intent, which is not enforceable in the law.
So the document, it cannot be enforced. And that’s the reason there have been deals where the premises have been bought and they are still lying, vacant in terms of the rentals not happening. And investors are paying outflows from their pocket. That is the maintenance amount.
And that’s the reason we wanted to highlight this. We have given 0.5 also as a weightage to this particular document. What is a registered lease. Or a registered ATL. So agreement to leases basically. Now we do have a similar example of agreement to sale wherein there are certain conditions that are to be fulfilled by the developer or the seller in terms of before doing a complete sale of the premises.
And here again it actually is happening in the cases of BTS that is built to suit. Agreement to lease site in this particular asset, we have a registered lease it in place, and that is nine years, 11 month. And that a reason we are, again, going ahead with 0.5 on 0.5,
📍 increment and how important it is? so increment typically industry standards are 5% every year or 15% after every three years in this case. It is 15% after every three years, the increment, though starts from 2023. The reason why this is happening is because Smartworks has gotten a fit out period for that much long.
And they will consider the start date as 2023. But having said that we are getting a 15% increment and therefore we are giving it 0.5 on 0.5, in terms of the rent start date, it’s important that the rent starts immediately because we don’t. Your money or the investor’s money to just be lying Idle, so therefore, ,in this case, ,the ideal situation is, maybe at about 15 odd days is probably acceptable. But beyond that, we expect that there should be some money that will come back to the investor. So therefore in this case, it’s about 45 days. So from 0.25, we have taken out 0.10 points.
It’s going to be 0.50. Now, in terms of the deposit, ideal deposit is six months. This one, it is four months. So again, we have to take away certain points here. So we are giving it 0.15 on 0.25.
📍 What about the notice period? notice period is also one of the very critical elements as you have a lock in or a registered lease that is in place. This gives a comfort to the investor because when the tenant is moving out, the larger the notice period, it gives that comfortable time for the investor to look out for the next tenant to get onboard.
Ideally we always keep that six months is 0.25, and less than that, three to five months is 0.15, less than three months is 0. In this case we have four months of notice period, and that’s the reason it falls in three to five months. And that’s the reason we are giving 0.15.
📍what’s the take on ROI. Everybody is concerned ki kitnadegi finally. So therefore the red ROI or return on investment from a rental yield perspective, the net average ROI for the first three years is 7.4. Ideally again, it should be 8%, therefore we’ve taken away point .25. So out of one, we have kept it at 0.75.
Now, one thing I just wanted to point out is that initially a lot of asset managers realized that everybody’s considering the entry yield and therefore they started doing top up and all of that. So therefore to have a bit of a level playing field. The entry yield may look very attractive, but the next year it drops by one, one point half percent is not an ideal situation.
So therefore we now are going to take the average ROI for the first three years. what about, the tenants stickiness, , is SmartWorks paying lower than the market rent? People would always see that these point, this particular point was always Clubb with the tenant profile earlier, but we have brought it down to ROI here.
Now, this basically is important for us to understand that if you have a market rent that you are going to provide to your tenant is lower than the market existing out there, then the tenant is going stay for long. In this particular case 60 rupees is what. Smartworks is going to pay. And if you look at the micromarket location out there, we are well below the market.
And that is one of the most attractive points for any tenant to grow on and to stay, to stick around the reason being when you have below market rentals, even after the increment, you become either at part or you’re still below the market level rental. And that is a very added point for a longer. stickin for a, , tenant,
📍what about the capital expenditure by tenant? And in this case, has Smartworks has done any expenditure? Yes, capital expenditure is very critical because once the tenant has invested so much money into the asset, their likelihood of leaving the place, reduces.
Again, SmartWorks model is that they take a bare shell place, invest and make it like a plug and play office for all their tenants. So therefore, it’s a big plus here because SmartWorks is. Going to invest very heavily, because if you see most of their clients are A grade market tenants, and those guys will not settle for anything that then the best in terms of furnishing and the fixtures. They want a great environment, the latest kind of a work environment, etc.
So therefore capital expenditure is done by Smartworks. It gets 0.5 on 0.5. So total ROI out of 2, it gets 1.75, in terms of knowing the asset manager what do you think of MYRE capital and the team? So one of the most critical elements of the entire review is the asset manager, how good is the asset manager and the background team that they have.
We have been following MYRE capital for quite some time, and we know that the team that’s managing the show is really good Aryaman. And his team are really. Upto the mark, the kind of work they’re doing, the scrutinising of asset due-diligence and every aspect of it. So again the biggest plus point for them is they’re being backed by Morphogenesis, they are, one of the top architectural firms of India. Manit Rastogi, they have some amazing value projects to their names and amazing clientele or to name a few. They are doing the Surat Diamond Bourse they have done. Maker Maxity in BKC, which is commanding the highest rental of the BKC. And again, I’m being a 10, a 12, 15 year old asset. It doesn’t look like a 12 to 15 year old asset.
So you know that what kind of quality of work they bring on the table. And that’s the reason we are going ahead with 0.5 for this particular aspect. Again, we have come down to this, also that profit is the holy grail of any business and is our asset manager profitable?
Here in this case, what we have seen is, , if you look at the fractional real estate space you have lot of less, asset managers who are heading towards the profitability for now. And we definitely see that. And that’s the reason behind it because this space is actually just 2 to 5 year old space.
And we see a lot of new entrants in the market, which are doing this and aspiring to become profitable. And we know that it is going to take time. Of course, they have a model space that they’re actually getting 1% of the management fee that they’re gonna charge every year on year
also, they actually are going to make money. Once you are taking exit as an investor. So we know that they will be profitable, but yeah, again in this case we know that MYRE would be profitable in the near future, but since it is not now, we have taken away that 0.25, because we definitely feel that and value that, that any business tomorrow should be profitable.
And that’s the reason asset manager also needs to be profitable. what’s your take on the client dashboard and why it is very important in any case. If you see the mutual funds or the stock market industry it’s evolved and it’s mature to such a great extent that everything is live today, you can track. Also, the fact that you can even exit you click a button in three days, your money’s into your bank account, et cetera. So we also feel that the ecosystem for fractional ownership should evolve to that level. And therefore, one of the key things is the fact that whether the client can access their receipts TDS, because the CA is going to
the investor saying TDS certificate, rent receipt so we don’t want, then the investors to run around or there should be any kind of communication where the investor would have to follow up, therefore, a central dashboard, which allows the. investor to log in and they have all these things ready, what have they invested in number one, number two, TDS certificate, rent, receipt, receipts, et cetera, NAV MYRE capital does on an annual basis, which we think is fair, acceptable, and therefore MYRE capital has invested in technology to enable these kind of things.
And therefore we give it 0.25 on 0.25 the next why we say that a lot of this depends on the asset manager and therefore if you see even all overall weightage earlier, we used to give it like one on the entire scheme of things. Like on 10 now we’ve increased the weightage to 20%. The reason for that is we are expecting the asset manager, not just to pick up the right opportunity and maintain it, but also the most critical thing is an exit, right? Again, most players are pretty young and two to three years is too short. A time to give an exit for any asset or an opportunity.
But having said that this is an ideal situation that we want. And therefore, if any asset manager is given a profitable exit for any of their opportunity, they should be awarded a 0.25 in case they, in this case they haven’t. So therefore we take that away.
📍Why is total asset under management important? a profitable exit given to any asset or not. And since you have limited players in this space, who have actually had experience of more than two years again, in this case that that is the same point that I would like to attract that there’s a learning curve with every asset that gets onboarded and When you get, get it funded and when you actually are managing it, and when you give an exit, that’s the entire life cycle of the entire asset. So when an asset manager is doing that, he definitely gains an experience and insights into how this is to be run. What kind of asset needs to be brought on if at all, there is a tenant releasing that happens.
There are certain issues that have croped up in the past and the, we have seen at tenants moving out. And there are other trouble. So all this experience get approved with the, every asset that you get funded and get you, you get onboard. So one thing I would like to add here is the fact that, apart while we are talking about larger things and all of that, even smaller things, for example, if there is a certain milestone, which we are experiencing with certain asset manager right now, after every milestone, the investor comes back and asks us what’s next, what is gonna happen now?
All those things. So ideally this should be streamlined. There’s a fantastic book called the best service is no service. So the idea is that the investors shouldn’t have had to ask any questions, so that communication needs to be so crystal clear, the steps need to be let’s say for example, you have a milestone and then you say, okay, this is what’s gonna happen next.
All of that. So all of these things, again very minor, small. But as asset managers evolve, they will start understanding this kind of feedback because see, ultimately it’s also linked to efficiency. If you have your relationship manager talking to, let’s say a hundred, 200 investors and giving them updates or, solving their queries, where is the time for them to do the next bit, right?
So therefore these are minor things, but very critical. And therefor. As they age, as they get more mature, I believe that a lot of things we believe that a lot of things will be streamlined. that definitely brings a lot of value on the table. And that’s the reason we felt that we should rate this particular point as well, or add this and rate them.
So any asset manager who is managing up 200 crores of an asset on 99 plus to is we are giving them zero. Anything from hundred to 200 is 0.05, point to five is 0.15 and find plus is 0.25. In this case, MYRE is managing close to 1.5cr worth of asset. And that’s the reason we are giving this 0.05 for now, and we definitely want them to cross the 500 core plus, AUM, get that 0.5 in their buy. So here, this point gets 0.05 on 0.25, moving to hurdle rate
📍Why do we grade asset manages on asset on the hurdle? So the hurdle rate basically is a threshold above. which the asset managers going to charge you asset management fee, they’re gonna take a cut on your profit.
Now this is a fantastic thing because the asset manager has skin in the game. Because again, while they’re charging a 1% AMC, that doesn’t suffice for them to be profitable for them to grow there are major chunk is going to come from that 20% performance fee. That they’re going to charge, which is again, linked to the fact that they will be very careful, not only to what kind of asset they are buying, but also to the fact that what price they are buying, because they have to be conscious about the fact that four or five years down the line, we will need to give an exit.
So hurdle rate again the lower, the hurdle rate is the lesser, the ideal situation from a investor’s perspective. We have got asset management managers who are charging 8%, 10%, 12%. Now what this means is that let’s say, for example in MYRE capital’s case. They have a hurdle rate of 12%, which is fantastic.
Let’s say for example, if they get the investor an IRR or an annual growth of 12%, which includes the yield and the capital appreciation, then over and above that they will charge 20%. Now this is applicable only during exit. So investors don’t need to worry about what, how is gonna be calculated, etc.,
during the term of investment only when it exits. So in this example, you’ve invested a hundred Rupees and on a year, on your basis, you’ve got 14 percent as IRR and 12 is the hurdle rate. So they’re gonna charge 20% on two Rupees that’s fourty paise ? So 20% on, over and above 12%.
Which we think is ex very healthy and therefore it gets 0.5 on 0.5. Finally earlier we used to have 0.5 points to what we think, We’ve reduced it to 0.25, paise. So I think like we were overhauling our entire rating system. We felt that there are a lot of other objectives that were being taken care of.
And we really felt that probably our rating should go down and let the objectives or the points that have been mentioned here to take the lead. And that’s the reason we have reduced it to 0.25 now in this case we always feel that there are three criteria which should be definitely taken care of.
That is the right location. You have a right asset and you have the right tenant. Now this mix is very good in this, MYRE proposal for now in terms of vaishnavi tech park 2 where you have a very good location of, ORR, outer ring rd you have a very good, grade A asset by Vaishnavi that’s why, and you have a combination of a good tenant that is Smartworks, which is doing amazingly well in this field..
So that’s the reason we would definitely share that. We should definitely go ahead with this investment. There is no second thoughts about this. Even if the tenant moves out, we know that the location and the asset grade are all in all a good combination to have, we will easily be able to again, lease it or get a new tenant onboard.
If you’re looking at investing, we think this is a good opportunity.If you have any questions about this opportunity, feel free to call us.