Academic project for Real Estate Finance and Development taught by Prof Richard Peiser and David Hamilton, in conjunction with Aakansha Jain (Harvard MAUD '23) | 2022, India
This project aims to study feasibility of sales of the yet to be constructed CBS Youth Square commercial project in Nashik, Maharashtra, India. The project is under construction on a one acre plot on which a mixed retail + commercial multi storey tower is being proposed. Previously owned by a public trust, this land is located in the historic downtown core of Nashik (a Tier II city in Maharashtra, India), and is being taken over by a real estate developer for commercial + retail development. The project is a precedent for multi storey developments in this particular area of Nashik. The developers for this project are a well established and leading real estate development company in Nashik called the Suyojit Group, who have over 25 years of experience in this city, and have recently started exploring the commercial real estate market.The project is conceptualized keeping in mind the developer’s returns, and as a way to hedge risks for what is going to be a first of its kind development, for both the developers and Nashik. Currently, the real estate market in India relies on pre construction sales, which results in extraordinary returns (IRR > 50%). However, there has been a recent regulatory body established in Maharashtra, called the Maharashtra Real Estate Regulatory Authority 2018 (MahaRERA) which would oversee and register all real estate construction in the state of Maharashtra, and ensure timely completion (MahaRERA.gov, 2022). Under the RERA, buyers and lease holders of real estate are protected by due compensation by the developer in case construction is delayed or the developer defaults. In this new regulatory environment, the risks are heavily skewed towards the developer who can no longer rely completely on pre construction sales to gain competitive returns. On the other hand, developers in Nashik also do not want to rely on purely leasing their properties, since they expect quick turnovers and refinancing so they can use their surpluses for other projects. The leasing model also captures the risk of an uncertain real estate market for both the developer and the buyer. As a way to balance risks, ensure gains and ensure timely project delivery under this regulatory environment, the project creates three financial models (scenarios) for this proposed development -
1. 100% lease up for the retail and office units
2. 100 % pre construction sales for retail and office units
3. A 50% lease up and 50% pre construction sales mix for retail and office units.
More information can be found here
