Preleased Properties in India
Preleased property is a commercial real estate property that is an income-generating asset, with tenants in place. Preleased properties offer a stable and predictable return on investment. Leases with MNC/A-grade tenants are usually for an extended duration of 5-15 years. Tenants also prefer longer-term leases as it enables them to amortize the fit-out and furniture expenses over a longer tenure. Further security is provided via a registered lease agreement that outlines the rental schedule and terms, thereby providing predictability for a landlord with respect to the rental cash flow.
The concept of vacancy risk is a reality. The vacancy risk can be evaluated and minimized but cannot be completely mitigated as this i2 an inherent risk of the underlying asset class. Some strategies of minimizing vacancy exposure are:
The stickiness of the tenant
Tenants that have invested significant Capex in the premises are relatively more sticky to the premises. Often tenants incur fit-out and furniture expenses of Rs. 2000-3000 per square foot. To make the investment economically feasible, tenants usually prefer to amortize the cost over a longer-tenured lease term and are hence less likely to vacate. Over time, the location also becomes a sticky factor for the tenant. Employees, Clients, and customers tend to correlate a location with the brand of the tenant.
Quality & Stability of the tenant
MNC and A-grade tenants are often a more secure choice when choosing a tenant. Such tenants seldom violate the agreed-upon lease terms and are more likely to invest in capital up-gradation of the property during their tenancy period.
Micro-market fundamentals
It is pertinent to understand the dynamics of the demographics and fundamentals of the micro-market. Factors such as upcoming supply, absorption rate, vacancy rate, and tenancy profile help provide insight into the long-term stability and performance.
Building quality & intrinsic asset value
A-grade buildings tend to perform relatively better with time. These buildings are often the preferred option for MNC tenants and tend to be isolated from the real estate demand cycle.
Fractional ownership platforms provide retail investors access to a curated selection of opportunities that are identified after evaluating and optimizing all such risks and mitigation strategies. Retail investors are able to enjoy the benefits of the Preleased property whilst end-to-end management and expertise are provided by the fractional ownership platform.
Why should you buy Preleased properties?
Preleased property will provide you with many benefits and will give you a lot of returns. People often invest in such properties as they can help them to get a fixed rental return that can range between 4.5-8% per annum depending upon the value of the place.
With Preleased properties, you can anticipate your cash flow with monthly yield. This makes it predictable and to have a planned cash flow.
The leases make CRE a much safer product because most of them are 9-15-year-old leases with commitments from MNC tenants. These are as safe as any income-generating asset.
When a property is not leased, investors take operational risk as well as vacancy risk. The operational risk lies in the fact that not all investors have the expertise to find a tenant, negotiate, and be on board with all compliances covered. So, having the right connection in the IPCs and network, being able to cater to all the MNC needs makes it a bit challenging, which is why buying a preleased property on sale gets more attention from investors since it eradicates the vacancy risk.
MNC tenants, quite often do the entire interior fit-out by investing capital to convert a bare shell office space to useable office space by improving the overall quality of the property.
MNC tenants, quite often do the entire interior fit-out by investing capital to convert a bare shell office space to useable office space by improving the overall quality of the property.
Locations of Preleased properties in India
WiseX serves preleased properties across India to both Indian and NRI customers. WiseX buys preleased properties at high-growth micro markets like Pune, Bangalore, Mumbai, Chennai, NCR, Hyderabad. We explore micro-markets where the risk is low and the demand is high. WiseX uses a data-driven approach and AI/ML-driven algorithms to identify high-growth micro markets that present opportunities whereby the intrinsic value of the property is relatively higher than the prevailing market value. Such opportunities present a compelling capital appreciation upside along with long-term tenant stability.
How WiseX is making a difference?
- A lot of these Preleased properties have a lot of demand from the MNC tenants. Since India is an IT hub, a lot of demand is driven from this perspective and they buy preleased property. More secured lease agreements with more secure tenants, come at a trade-off of a much higher value of the property and they go up to 25-30 crores because of which a very limited segment of the investor class are able to invest in these.
- WiseX lowers that barrier to entry for retail investors, by enabling participation to institutional-grade preleased properties at a minimum ticket size of 25 lakhs via its proprietary fractional ownership model. This enables investors to access institutional grade returns at a fraction of the investment!
- The user base of WiseX comprises retail investors, HNI’s, family offices, and institutional clients. HNI investors have also started preferring such platforms as they are able to diversify their exposure to CRE across multiple properties in multiple cities as opposed to having concentrated risk in a single asset.
