In the five years since it was set up in 2001, Nitesh Estates, the unlisted real-estate developer based in Bangalore, has raised more than Rs697 crore capital from global investors. This includes Rs450 crore for a luxury hotel project funded by Citigroup Property Investors and around Rs250 crore from the US-based hedge fund Och-Ziff Capital Management group, which ranks among the top five hedge funds in the world.
In conversation with Mint, founder and managing director Nitesh Shetty explains why aggressive fund-raising will continue to be his central business strategy as he keeps pace with the competition in the Indian real-estate sector, which is estimated to grow to Rs2.25 lakh crore by 2012, at a compounded annual growth rate of 30%. Edited excerpts from the interview:
Nitesh Estates has announced a slew of major projects in the residential, commercial and hospitality segments. What is the status of these projects?
Currently, Nitesh Estates has over four million sq. ft of residential and commercial properties under construction, valued approximately at around Rs1,200 crore.
This includes a Rs100 crore project to build condominiums for ITC Ltd in north Bangalore; IT (information technology) parks in Mysore, Mangalore, Kochi and Kolkata; premium residential projects and a 250-room luxury hotel in downtown Bangalore that will be open for business in mid-2009.
Ritz-Carlton is the hotel chain you are partnering with for its India projects. Which are the other projects apart from the one in Bangalore that you plan with them?
We have a joint venture with Ritz Carlton to bid for a hotel project in Kolkata; we have put in a joint bid to develop the Royal Calcutta Turf Club’s four-acre property on Russell Street into a five-star hotel. It will be a consortium approach. Hospitality is a major focus area for the company and we will have a presence in the luxury segment as realty partners for five-star hotel projects in the cities we operate in. We are currently looking at a project in Chennai as well.
In expansion mode: Nitesh Shetty stands in front of Nitesh Times Square, which his company built in Bangalore. What are your plans to expand beyond the Bangalore market, apart from the hospitality projects that you have expressed interest in?
Real estate is a very localized business; it tends to be a very region-specific operation. It is possible to do the odd large project in other cities, or acquire land through the auction route, but on an ongoing basis, those with local know-how close deals. Nitesh Estates will concentrate on five large markets and build expertise there—Bangalore, Chennai, Kochi, Kolkata and Goa are where we will have a significant presence. And in these markets we will have residential, commercial, hospitality and retail projects.
Nitesh Estates has been a trend influencer in the Bangalore realty scene. What is the consumer response to your speciality projects?
It is a question of timing. The launch of Nitesh Estates has paralleled the new wave of wealth creation in Bangalore, and there were a section of people looking to move from premium to super-luxury apartments.
In demand was an exclusive environment that also offered the convenience and security of community living.
Nitesh properties on Lavelle Road and Race Course Road in central Bangalore are now retailing at Rs15,000 per sq. ft and are projects by-invitation only with about 15 homes in each location. We have sold apartments priced at Rs6.5-Rs9 crore each. But that does not mean we are not in the volume market.
We have projects in the suburbs that offer apartments in the range of Rs25-Rs40 lakh; we will do both the super-luxury and the premium end, which offers volume business.
How do you balance the interests of multiple investors on your board? You have, for example, representation from both a private equity player as well as a hedge fund on your board.
The modes of investment differ. Och-Ziff, for instance, invested approximately Rs247 core for a 25% stake in Nitesh Estates. Citigroup on the other hand will invest up to Rs450 crore in a special purpose vehicle (SPV) for hospitality sector projects including the luxury hotel project in downtown Bangalore. We have different investors for different projects.
As a young company with no legacy systems, either in accounting or in corporate practices, it was relatively easy for us to adopt the stringent financial standards that PE (private equity) firms and hedge fund investors demand.
We began by raising debt from Indian banks, so it did take a lot of learning for us to move from accounting standards set by Indian banks to that demanded by global investors; as a young start-up, we had to scale our systems very rapidly.
These investors have brought in a new level of corporate governance and understanding of risk factors and financial management to the company.
Hedge funds normally invest in companies that are ready for an initial public offer (IPO), typically ahead of a public issue. Does the Och-Ziff investment in Nitesh Estates signify that Nitesh Estates will think of a listing soon?
For Nitesh Estates, it is early to start thinking of an IPO. But in the next 24 months we would like to raise funds from the public market. I am not sure of the size of such an issue at this point.
So more capital in the near term will be raised from institutional investors? What is the status with the Siachen Capital deal that was to bring in Rs450 crore to Nitesh Estates, according to an announcement in 2006?
Siachen Capital was to invest in an SPV for a specific project that is yet to be formalized; therefore, we have no announcements to make on that deal. We normally raise capital on a project basis, through the SPV route. In the next 12 months, we will be looking at further raising $100million (Rs410 crore) to fund projects in the pipeline.
Your company has bid for a Rs2,000 crore shipyard building project at Kandla competing with 14 other companies including Larsen & Toubro and South Korea’s Hanzin Heavy Industries. Is this the start of a major diversification for the company?
Yes, we are very keen to enter the infrastructure sector, particularly in the build, operate and transfer models for construction of roads and ports. The Kandla Port project will be decided on an international competitive bidding process and we are one of the companies short-listed along with other majors such as Essar Construction, Bharati Shipyard and the ABG group.
Nitesh Infrastructure, a group company, will spearhead the activities in this sector. The Kandla Port Trust has invited bids for expression of interest that will be firmed up in the next three months.
My first start-up company was Serve and Volley; an out-of-home media company that I began with seed money borrowed from my mother. From billboards I moved to buildings, the infrastructure sector is the next move forward.
Will you follow a similar fund-raising strategy for the infrastructure sector, raising private equity capital?
For my first real-estate project, a commercial office building in downtown Bangalore, I raised a loan of Rs8.5 crore from the Dhanalakshmi Bank.
Later, Corporation Bank extended credit for individual projects until we moved on to raising equity capital that helped fund big-ticket projects.
So there has always been a mix of debt and equity capital. As the Nitesh Group moves into different verticals, the choice of capital will be determined on a project basis.