Why did a firm like Welspun One, which has no investment experience, venture into the AIF space?
Welspun One was always set up as a pan-India integrated fund, development and asset management organization. We foresaw a clear opportunity in the fast-growing warehousing sector, where foreign capital has been very active, but no institutional avenue existed for domestic HNIs to invest - this need gap led to us to our first AIF.
Our unique proposition of being an integrated platform that ensures complete control over the entire lifecycle of the investment including buying, building, leasing and finally divestment has resonated well with the investors. This business proposition has further propelled their confidence in us, as it mitigates some of the key concerns associated with similar products in the past.
Since the launch of our fund, the response we have received from investors has been very encouraging and is a testament to the team we have built. Today we have a robust in-house team of 35 members, where the senior team members come with an average of over 15 years of experience in their relevant domains with leading organizations.
Where will you invest the funds raised via the AIF?
Our investment strategy is focused on sourcing and developing feasible land parcels which suit institutional investors and get leased by valued occupiers, whilst maintaining high levels of compliance, safety and zero tolerance to regulatory lapses across the project lifecycle.
With our maiden fund, we look forward to developing Grade-A warehousing assets worth USD 265 million; including our flagship 2.7 million square feet project in Bhiwandi which is currently underway. In total, we expect to invest in and deliver a portfolio with an estimated leasable area of 7 to 8 million square feet over the next 3 to 4 years in pre-identified high growth markets and lease them on a long-term basis to ‘AAA’ credit tenants from sectors such as e-commerce, FMCG, third-party logistics (3PLs), pharma and auto-ancillaries.
How does this Welspun One's AIF fill a gap in the portfolio of HNIs/UHNIs in the country?
To answer this, it’s important to understand how investments were previously made in the sector: Earlier, the only way to participate in the warehousing sector was by investing directly in warehouses. This created multiple issues for investors - risk parameters were unmitigated without institutional players; investments made were highly illiquid; ticket sizes were large; and most importantly, there was no efficient way for investors to chart the trajectory of their investment.
An AIF model enables investors to reap the benefits of development returns by owning units of a fund that is managed by a qualified and proficient team while saving them the hassles involved in owning the whole asset itself. Firstly, this will open up the field for many more investors to partake in this investment opportunity. Secondly, within real estate, warehousing is one of the few sectors that has stayed resilient during the pandemic and will see tremendous growth in the coming years. Thus a product of this nature allows investors to balance their portfolios with a real estate exposure with lower associated risks.
Why are you so upbeat about the warehousing and logistics sector?
To understand the attractiveness of the warehousing sector, one needs to look at the regulatory policies, economic sentiment and changing dynamics in consumer behavior. E-commerce continues to be a preferred mode of shopping in the post-COVID-19 world, facilitated by increased smartphone penetration, expansive internet data coverage, rising consumerism and aspiration in Tier-II, Tier-III cities.
Any e-commerce operation needs a strong and robust supply chain network, of which, modern warehousing forms a critical component. As these companies rapidly look to expand in their battle for retail supremacy, investments in ancillary infrastructure like warehousing will remain a top priority. We estimate that e-commerce companies, themselves, will require at least 25 million sq. ft. of Grade-A warehousing stock in 2025 across the country.
The government’s policies have also provided a huge boost to the industrial sector, with initiatives like privatization and unlocking the latent potential of infrastructure assets contributing to an overall positive outlook. For instance, as per a recent JLL report- the demand for warehousing is expected to grow around 160% to reach 35 million sq. ft. of absorption in 2021, in line with 2019 numbers. This signals resiliency and a very positive outlook for the sector. Lastly, to premise this discussion in the larger scheme of things: China is about 50x and the US is about 400x of India in comparison to India in per capita stock terms. Most large US cities have more warehousing stock than India's total stock, so clearly there's a tremendous headroom to grow over the mid to long term.
Where do you see the pockets of growth coming up?
Urban centers like Mumbai, Pune, Bangalore, NCR, Chennai and Kolkata are high growth markets, not only because of their high purchasing power but also because of the development of warehousing hubs either in the suburbs or on the outskirts of these cities. However, the all-pervasive e-commerce boom and shifts towards digital consumption in Tier-3 and Tier-4 towns signals high-growth markets propping up across the country.
How soon will you be able to close the fund by reaching the INR 500 cr target?
Earlier this month, we announced our first close and by this time are closer to touching INR 400 crore; with the balance amount already in the pipeline. We look forward to closing the fund very soon, after which we may elect to utilize a “greenshoe” option for select investors.
The Budget has given certain incentives to the infra and manufacturing sector. How will that provide an extra push and what kind of demand do you expect to see?
The latest Budget has checked the right boxes. It has focused on economic growth fuelled by infrastructure spends. Along with budgetary allocations, the government has proposed the establishment of a Development Financial Institution (DFI) to monetise existing assets of public sector entities and reinvest them into Greenfield infrastructure projects. Further, to attract retail and foreign investment into Indian infra space, the government has proposed to abolish tax deduction at source on REITs and InvITs along with the issuance of zero-coupon bonds by infrastructure companies. This overall impetus will help infuse fresh capital in the infrastructure sector.
Moreover, the government aims to complete 11,000 km of national highway infrastructure in 2021 and plans to set up a large solar power capacity alongside rail tracks. All this will boost manufacturing and construction projects, resulting in higher demand for warehousing and logistics space. Lastly, The National Logistics Policy, which is slated to be released soon, will help resolve the long-pending issue of bringing down logistics costs.
Will we see this AIF eventually venture into other infrastructure assets too?
At the moment our plans are limited only to industrial infrastructure - warehousing is our mandate for WOLP Fund 1 and we would like to focus on that.