Storable AIFs: the next frontier of investment?

By on May 30, 2021 0
Over the past few years, we have witnessed disruptive trends in the investment community: access to financial products is now more inclusive, innovation comes first, and awareness of the importance of investing is at an all time high. . It is the era of the democratization of finance.

This democratization had two subsequent consequences: while it made some financial products saturated and in many ways obsolete, it gave birth to a different class of innovative financial products that have the potential to tap into previously unexplored waters. of India’s vibrant economy.

Within real estate, warehousing has been one of the few sectors to have demonstrated resilience and continued growth, despite the economic headwinds caused by the Covid-19 pandemic. The 2020 global pandemic and resulting lockdowns have accelerated both the scope and pace of e-commerce adoption; facilitated by increased smartphone penetration, extended internet data coverage, growing consumerism and growing aspiration in Tier II and Tier III cities.

Any e-commerce operation needs a strong and robust supply chain network, of which modern warehousing is an essential part. As these global e-commerce companies rapidly seek to expand in their battle for retail supremacy, investments in ancillary infrastructure such as warehousing; particularly well located, modern, conforms to a very high quality of construction; will remain a top priority. We estimate that e-commerce companies themselves will need at least 25 million square feet of Class A warehousing inventory by 2025 across the country, which in 2020 was 9.3 million. square feet.

In addition, government policies have given the warehousing sector a huge boost. The warehousing segment in India gained prominence in 2017 when the government implemented the GST, assigned “infrastructure status” to the sector and allowed 100% FDI. Subsequent initiatives such as “Make in India” and “Atmanirbhar Bharat” have contributed to the overall positive outlook in the larger manufacturing space, which directly creates demand for warehousing. In the future, the national logistics policy, which is expected to be published soon, aimed at accelerating the reduction of logistics costs from 13-14% of GDP to 10% will have a direct and positive impact on the warehousing sector.

In light of favorable demand and supply dynamics, India’s warehousing industry has already garnered considerable interest from blue chip investors around the world and in India. On the institutional investment side, the sector has recorded more than $ 6 billion in investments since 2017. However, this investment opportunity has historically been limited to institutional players or investors willing to own a warehouse asset. In contrast, with an AIF investment model, investors are able to reap the benefits of development returns by owning units of a fund, instead of the asset itself. This opens the door for domestic retail investors and HNIs to own a stake in the growing warehousing segment. Recently launched wealth products like AIFs have introduced warehousing and logistics as a new asset class.

Attractive development models also provide an additional incentive for investors – developers now identify tenant needs in advance and build custom warehouses to ensure cash flow. In addition, the strong global demand for Class A warehouses in industries such as e-commerce, 3PL, cold storage, manufacturing and pharmacy ensures a robust pipeline, makes asset monetization possible and the possibility of provide higher risk-adjusted returns. Investors are more inclined to warehousing due to shorter development cycles, lower construction complexity, and low construction costs unlike traditional real estate, whether commercial or residential. At the final stage, these income-generating assets, designed to adapt to weather conditions or built speculatively on the assessment of demand, are then sold to institutional and blue-chip investors, giving them clear visibility. on targeted returns as well as potential exit routes.

As the second wave of the coronavirus spreads across the country, the warehousing and logistics sector may be the only sector that will continue to see demand. In fact, the continued lockdown will only benefit the e-commerce industry, leading to demand for more Class A warehousing facilities. Investors hope the warehousing segment will emerge stronger from the market. the global crisis and institutional investors are expected to continue to acquire warehousing assets in the years to come. As investors continue to seek out the next bountiful coin in India’s great growth story, we expect a lot of interest from AIFs, REITs and other secondary offerings for the storage of assets in one. near future.

(Anshul Singhal is Managing Director of Welspun One Logistics Parks. His views are his own)