The rise of real estate corporate finance

Jan 14 2012, 11:12 IST
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SummaryThe impact of the crisis on Indian corporates is deeper than was initially anticipated. Broadly speaking, the Indian economic outlook must be viewed in a cautious light.

Financial crises in some or the other form are the results of overheating markets, excessive debt leveraging, credit booms, errors in reading risks, too much money leaving the country in too short a period, faulty or mismanaged macroeconomic policies and unmonitored deregulation.

India is currently feeling the fallout of the on-going global crisis. The country’s equity and credit markets are reeling under the combined effects of reduced overseas financing for Indian banks and corporates, reduced opportunities to raise funds on the Indian capital market and increasingly constrained internal accruals by corporates.

Effect on corporates

The impact of the crisis on Indian corporates is deeper than was initially anticipated. Broadly speaking, the Indian economic outlook must be viewed in a cautious light. Economic activity has definitely slowed and GDP has been rationalised perceptibly. Industrial activity, especially in the manufacturing and infrastructure sectors, has seen marked reduction, and even the services sector, which has been the sector we were counting on the most — is slowing down. In fact, the financial crisis and economic slowdown in the developed economies are having a direct impact on the IT, construction and manufacturing industries.

In such an uncertain economic environment, many corporates in India are already facing considerable challenges. While the more cash-rich companies may not be as severely affected, the ones which have lower financial enablement quotients are facing liquidity issues in varying degrees of severity.

Role of Corporate Finance

Over the last seven years, there has been a tectonic shift in asset pricing, and real estate has emerged as a very valuable asset class. In earlier times, corporates viewed their real estate holdings as expenditure, since reaping returns on these holdings took a very long time.

Today, corporate real estate holdings in India have emerged as a dynamic asset class - dynamic enough to warrant the creation of strategy around these assets. With the state of the economy and the resultant liquidity issues being what they are, many of the more stressed corporates are looking at strategising, optimising, rationalising or monetising their real estate.

Real estate corporate finance is a industry vertical which views and addresses the servicing of such corporates from a strategic business perspective. It transcends the basic corporate leasing model and opens up a timely new way in which to provide corporates with non-performing real estate holdings with real value in a changing world. l

—The author is MD, Corporate Finance, Jones Lang LaSalle India

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