Building Opportunity in India

By putting $10 billion into the country's infrastructure, Cayman Islands-based real estate investor Trikona Capital plans to do well by doing good

The rich parts of India are like a handful of diamonds scattered on a sunny beach. There's a lot of hot sand between the shiny bits. In places such as the Delhi suburb of Gurgaon, the outskirts of Hyderabad, and around the high-tech capital of Bangalore, new buildings rise from the ground with breathtaking speed. Yet elsewhere, the real estate boom stimulated by the country's fast-growing high-tech industry has barely made a mark. The hang-ups: poor infrastructure, convoluted land ownership rules, and an out-of-date financial system.
Cayman Islands-based Trikona Capital, one of the world's largest investors in real estate projects, has a simple prescription for these problems: "If you're socially conscious, you can do something about it," says Aashish Kalra, a co-founder and managing director. By that he means financiers can accelerate Indian projects and improve their returns if they invest some of their capital in building infrastructure like roads, bridges, hospitals, and even low-income housing. "If you do the right thing for society, you're creating the opportunity—and you make your profit," says Kalra. He expects the firm to reap more than a 25% return on every project it finances in India.

Development experts applaud what Trikona is doing. "The fact that companies like Trikona are paying attention to the social infrastructure bodes well, and I believe should be a new trend that other developers could follow," says Srinath Koganti, a professor at the Delhi School of Architecture & Planning.

FOREIGN MONEY IS TRICKLING IN
Foreign direct investment in Indian real estate began to take off in the past couple of years, after the central government began lifting restrictions. A November study by the Associated Chambers of Commerce& Industry of India projected that foreign investors would sink about $2 billion into Indian real estate in the fiscal year ending in March, helping to fuel a commercial real estate market that topped $12 billion last year and is growing at 25% to 30% a year, according to investment bank Edelweiss Capital.

In spite of a lot of announcements and excitement, however, not much of the foreign money has found its way into bricks and mortar. "It has made a start, but it will be a couple of years before we see FDI (foreign direct investment) materializing on the ground," says Manish Grover, associate director in India of Jones Lang LaSalle, the Chicago real estate service firm.

Trikona is in the vanguard. It became active in India only last year, but it has committed to investing $10 billion over the next several years. Its strategy is to form partnerships with local investment and construction companies, and, in most of its projects, there's a social component. For instance, last October it entered a partnership to build a 1.37 million-square-foot condominium development in central Mumbai that will include 2,500 free apartments for low-income city dwellers. The goal is to help overcrowded Mumbai become a more livable city and a better environment in which to do business.

LETTING GOVERNMENT PAVE THE WAY
Outside Mumbai, Trikona is financing the construction of a new 127-acre township in Thane, a city with a population of about 1 million. In addition to erecting commercial and residential buildings, the developers are sprucing up the old parts of town and working with a large health-care provider to establish a first-rate hospital. Without excellent medical care, it would be hard to attract tenants and home buyers.

One of the big hang-ups for real estate developers in India has been the tangle of land rights. Sometimes several people own a tiny plot of land, and many tiny plots must be purchased to assemble a large tract. Developers are forced to track down and negotiate with all the owners. Trikona has found a way to get around that obstacle: by investing in large government-sponsored infrastructure projects. That way, the government acquires land adjacent to new highways that is available for development and unencumbered by ownership claims. For example, Trikona has invested in ITNL, which is developing several major public-private highway projects throughout the country. "We now have access to thousands of miles of land along the highway—one of the largest land banks in India," says Kalra.

While Trikona is spreading its money around liberally, new financing techniques are needed if India is to quickly upgrade its tattered infrastructure. Until recently, there were no municipal and state bond markets. Laws have been passed to open things up, but local governments and financial firms have been slow to capitalize on the changes. In the meantime, Kalra urges India's central government to allow foreign direct investment in municipal bonds. "We have a great equity market and a pathetic bond market," he says. "Once we create a bond market that resembles our equity markets, that's the missing link."

He's optimistic about the country's prospects, however. Kalra grew up in India and remembers a time when people who wanted a car had to wait 10 years; and getting a phone line could take five. "All of these (infrastructure) problems are solved if you throw enough money at it," he says. "The good news is that India now has the growth rate to attract the money."