FOPS ready to roll out bit-sized Reits
Many real estate ownership platforms to file with markets regulator under recently notified norms
Real estate fractional ownership platforms (FOPS) are planning to roll out small-sized real estate investment trusts (Reits) under the newly introduced Small and Medium (SM) Reit Regulations.
Platforms like hbits, Assetmonk, and Wisex are giving final touches to their products. Sources said their new issuances could be in the range of ~75 crore to ~200 crore.
The Securities and Exchange Board of India (Sebi) board approved the SM Reit norms in November 2023 and notified them in March in an attempt to bring these real estate platforms under the regulatory ambit.
FOPS offer co-ownership of a real estate asset, mostly earning through rentals.
Sebi’s push for SM Reits has the potential to regularise underlying real estate assets to the tune of over ~4,000 crore in the near to mid-term, according to Colliers, a real estate consultant.
SM Reits can leverage their investments by borrowing up to 49 per cent of the asset value. Further, it brings the sponsor’s skin in the game. The sponsor of the SM Reit has to invest their own capital (5 per cent with no leverage, 15 per cent with leverage). This ensures the alignment of interests between the sponsor and investors.
hbits, which facilitates investments in commercial properties, plans to file its documents for registration by mid-may and float the first issue within three months. The firm is planning ~75–100 crore worth of SM Reits for fresh assets, which will either be in Mumbai, Bengaluru, or Pune.
“We have got a positive response from investors and are at the last stage of our legal consultation to file with the regulator. Sebi guidelines give confidence to investors and will bring liquidity to these assets. Also, lowering the minimum investment to ~10 lakh will also help in wider participation,” said Shiv Parekh, founder of hbits.
Assetmonk, another alternative real estate investment platform, is also eyeing a fresh issue of ~200 crore by the end of this calendar year. However, it may file for registration with Sebi by the end of June this year. The company will also look for the opportunity to migrate its existing assets to the new framework upon approval.
“We will do the number-crunching on migration depending on the response to the fresh issue. We have identified the assets, but we are trying to understand the additional costs and structure our financial models,” said Prudhvi Reddy, founder and chief executive officer (CEO), Assetmonk.
For the migration of existing assets to the SM Reit structure, Reddy adds that they will need approval from the present investors and a detailed dialogue with them, which may take time. The company’s first issue may only come by year-end or the first quarter of the next year.
Aryaman Vir, CEO of Wisex, is also mulling over migrating the firm’s existing assets to the newer structure, along with a fresh issue. “We are currently in the consultation phase and are hoping to expedite the application process within three months. For the first set of newer opportunities, our evaluation of properties is in the range of ~50–100 crore. Our existing opportunities will also migrate to the newer structure and should be in the range of ~250–300 crore,” he added.
With the new norms, both residential and commercial properties with a minimum value of ~50 crore can be included in SM Reits.
At present, only large-scale commercial properties could be part of Reits. Embassy Office Parks, Brookfield India Real Estate Trust, and Mindspace Business Park are some of the Reits listed in the domestic market.
Market players said the good performance of full-scale Reits will pave the way for their smaller counterparts.
“The number of unit holders for the three office Reits in India has shown an annual growth of 60–80 per cent since listing. On similar lines, SM Reits have the potential to witness an increase in ownership base by up to 20 times in the next four to five years,” said Badal Yagnik, CEO, Colliers India.