A fund manager who thinks like a property developer, Ramesh Jogani has rewritten a few rules of real estate investing. Now he is ready with his next disruptive trick
Of all the lofty dreams spun around the India Growth Story, none is as compelling as its real estate narrative. From nowhere in the middle of the last decade, the country’s property market has raced like a horse on steroids to reach a size of $50 billion. In every city and town, an endless row of nouveau riche has surfaced, having traded their land and buildings for unprecedented sums. By now, Indians have come to believe that buying property is the surest way of doubling their money every two or three years.
It was in the middle of this mayhem in 2008 that Ramesh Jogani decided to walk out of an investment deal in a development project in New Delhi. It first appeared to be an insane decision given that anything was selling at any price then. As the CEO of one of India’s earliest real estate venture capital funds, Jogani could have also used that project to enter the lucrative property market in the National Capital Region.
But the deal fell through on a single point. The builder had promised to cap the development cost at Rs. 1,300 per sq. ft., something that Jogani couldn’t believe. He reckoned that the actual cost would end up crossing Rs. 1,700 per sq. ft. given that a high-rise needs extra investments in fire-fighting equipment, security systems and such.
“We knew instinctively that the project would not work and so we cancelled the deal,” recalls Jogani, a 46-year-old movie buff who grew up in Mumbai watching classics such as The Godfather, Fiddler on the Roof and Sholay. It turned out that he had got the plot right. The actual cost of that project zoomed to as much as Rs. 2,000 per sq. ft., shrinking the profits for its investors.
It is through such contrarian thoughts that Jogani has built Indiareit, a Piramal Group venture, into one of just half-a-dozen real estate fund houses in the country to have made profits and returned money to investors. Of the 46 real estate funds that have invested in India, 38 or 39 have not yet been able to give returns to investors. They have been the victims of all the excesses of a bubble such as investing in overcapacity or at the top of the
demand cycle.
On the contrary, Indiareit has not only made profitable exits, but has also gone back regularly to investors to raise more money. It is thus in an exclusive club that includes powerhouses such as HDFC and Kotak.
The figures speak for themselves. Indiareit’s three domestic funds and one offshore fund have made successful exits from various properties at an internal rate of return in the range of 19-31 percent. The percentage of money returned to investors ranges from 40 percent to 65 percent of the corpus of each of these funds. It is this success that has now attracted Religare Enterprises to consider acquiring the fund house.
Those who know Jogani say that his success is largely the result of the fact that he comes from a builder’s family. Unlike the financial wizards that populate the venture capital scene, Jogani thinks like a developer and not just like a money manager. “He knows how much risk to take and also when exactly to get out,” says Ambar Maheshwari, head of DTZ, a property consulting firm. Jogani knows the land price in any given area, knows how much a fire hydrant costs and what is the labour charge for fixing an elevator. He also understands at what price demand begins and where it ends.
And here comes the tour de force. Jogani is already planning to take his developer links to the next level. He is shaping a business plan that will remove one layer in the construction industry, merge the developer and the venture capitalist into one and bring down prices for homebuyers. If his plan works, it could ‘change the game’ for builders and real estate funds alike, industry players say.
Not the Contrarian
Until 2005, Jogani hadn’t managed any fund or specialised in finance. His years had been rolling by in the management of the family business. But Jogani Constructions, which had once been one of the top builders in Mumbai, had split and it was a lot less fun for Jogani to run a smaller business.
The initial days were tough. Jogani recalls the long hours he spent on the road meeting investors and distributors. But 2006 was also the time when a host of real estate funds had flooded the market. Many were backed by large banks or financial institutions and others had fund managers with a dedicated track record at the helm. Indiareit had neither. Jogani had never managed a fund and came with a property developer background. Later events would show this to be a strength but back then, he knew he didn’t have a compelling story to sell to investors. Infographic: Sameer Pawar
A key element of Jogani’s investment style is a clear exit strategy. He doesn’t put money in a project unless he knows he can sell the investment within the horizon of the fund. For instance, he avoided hotel projects where he saw no clear exit option. It takes anywhere between five and seven years to identify land, get clearances and build a hotel. That leaves very little time for a fund like Indiareit to profitably sell that investment.
(This story appears in the 22 April, 2011 issue of Forbes India. To visit our Archives, click here.)