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Rejuvenating distressed properties

A stalled project is one of the biggest nightmares of the real estate sector stakeholders, be it the developers, investors or the end users.

Rejuvenating distressed properties

Kalpesh Mehta Founder, Tribeca Properties

A stalled project is one of the biggest nightmares of the real estate sector stakeholders, be it the developers, investors or the end users. Glitches in getting the mandatory approvals and liquidity issues are some of the key reasons that may put a project in a limbo causing delays that can dent the property business significantly. Developers can take the bankruptcy road, but it is the end users who suffer the most in such a scenario. In some recent high-profile cases of the same nature, the government and even the lenders have shown inclination to involve third parties to complete such projects. The desperate situation has been seen as a profitable proposition by players with deep pockets, who have been stepping in to revive and finish such projects. The asset-light model is different from the traditional land development model as in this the  product developers specialising in design and delivery take up a project after the land acquisition stage and complete it for a developer or a lender. Working on this model to make profit by turning around projects is Tribeca Developers.  Kalpesh Mehta, founder of the company, gives a low down on this model that is setting a new trend in the realty space.   

What are distressed assets?

This is basically a project stuck at some stage of its lifecycle. There are two types of distress that we look at. The first one is a distressed developer; where the completion deadlines have been missed because of financial mess of a developer and the developer wants a third party to complete it.  The second type comes from lenders. Where the lender wants the project to be completed and resolve the situation.

How are the quality standards maintained in these projects?

There is no compromise on quality as the customers will get what they were promised originally. Actually the quality standards have seen to drop in cases where the distressed developers take up the task of completing the projects themselves under duress as the developer may be fighting 10 legal cases and have very little fiscal room to manoeuvre in. But because we have been presented in a clean slate and the lender is not in conflict with us and if we do the right thing we get paid a fee keeping the standard and meeting the timelines

Do you think Indian real estate market or the lenders, developers and customers are ready for such an arrangement?

The asset-light model of execution may be finding a footing in the Indian market, but developers and lenders are aware of its benefits. Actually people have approached us even for normal projects. The acceptance was there always because of the profit margins, the current distress in the market has just widened the opportunity window. When a project is in trouble, lenders have little option — they can either take a big haircut and walk away or have an arrangement with a third party.  So it is useful for lenders as well as developers to tie up with product specialists in this zone. 

Does it add to the end cost for the buyer?

Not really because if the developers had to execute it themselves then they too would have to incur substantial cost. So from a customer stand point the price of houses is not escalated at all. The logic being that faster completion will save interest cost for them for loans etc. Thus, in the long run it just might turn out to be cheaper for them. 

Where do the execution parties stand vis a vis RERA in such cases? 

It depends, as the execution agencies also have to stick to the completion deadlines. We have to give it in writing to the developer about the completion timelines.

Any target for 2019 for your company?

We currently have six projects as we are focusing on Mumbai and NCR markets at present, and we plan to double this number this year. The group is in advanced discussions with investors to set up a platform focused on distressed assets in the real estate space. 

— As told to Geetu Vaid

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