Prestige: E for expansion

It’s got the works. The penthouse that crowns Kingfisher Towers at UB City in Bengaluru has a wine cellar, an indoor heated pool, an outdoor infinity pool, a gym, a salon and spa, a parking lot for 100 cars, and to top it all, helipads on the roof. It is grand and extravagant— much like the persona of the man for whom it was built. “It was designed according to the whims and fancies of Mr VJM (Vijay Mallya),” says Irfan Razack, chairman and managing director of Prestige Group. Razack’s Prestige Estates Projects partnered with Mallya’s United Breweries Holdings to build the ultra-luxury residential project. “Who’s going to live there now, only God knows,” Razack muses. Mallya, who is facing charges of fraud over loans he availed for his now defunct Kingfisher Airlines, is in London holding out extradition attempts by authorities in India.

Though uncertainty hangs over the embattled liquor baron and his group’s share of apartments in the project because of a court ban on their sale, Prestige has sold most of its units. The most recent sale was in April when two flats went at about ₹35 crore each. It has kept six units to be sold later once the community is up and running, hoping to sell them at a premium and recover some of the cost overruns. Prestige Estates Projects owns 45% in the luxury property and United Breweries Holdings 55%.

Things could have gone better with the project anchored on 4.5 acres of land in the heart of the city where Mallya’s ancestral home once stood. “Kingfisher Towers is ready, and yet I have not gotten the same satisfaction and happiness with its completion as I usually do with my projects,” says the 65-year-old Razack. However, such thoughts do not weigh on his mind anymore. Instead, the builder is focussing on bigger plans to expand to newer markets in India. After years of focussing on the country’s southern region, the Bengaluru-based firm is looking to expand to the north and the west. It is in the process of laying the groundwork for residential and commercial projects in Mumbai, the country’s most expensive and competitive real estate market, the National Capital Region (NCR), and Pune.

The strategy adopted by Prestige Estates Projects is to expand at a measured pace and not go in for big bang expansion. The company is set to launch two projects in Mumbai: one in Pali Hill, a residential area in the suburb of Bandra, and another in Byculla, a neighbourhood in south Mumbai. The one in Pali Hill is a small redevelopment, while the Byculla property is a larger residential project to be jointly developed with Jasdan Construction. The realty firm has also signed up for a project in Airoli, a residential and commercial area in Navi Mumbai, one of the city’s fastest growing areas.

Several real estate consultants agree that setting up shop in Mumbai won’t be easy for the builder as the city has been struggling with a huge number of unsold units, accounting for a third of unsold inventory across India’s top seven cities (see chart). The real estate market has been in the throes of a downturn across the country since demonetisation. According to data from Anarock Property Consultants, the Mumbai Metropolitan Region (MMR)—which comprises Mumbai, Navi Mumbai, Thane, and Powai— had 210,000 unsold residential units as of the second quarter of 2018. Club figures from the NCR and this becomes 410,000 units worth ₹3.6 lakh crore.

That’s not all. Cash-rich Lodha Developers already has a stronghold in the city. Making inroads into a market which has an entrenched incumbent as Lodha Developers won’t be easy. In 2005, India’s largest builder, DLF, bought about 17 acres in the city’s prime Worli area for ₹703 crore and ultimately sold it to Lodha in 2013 for over ₹2,700 crore. Some might say it was an impressive return on investment for DLF, but the builder had to shelve its plans of establishing a foothold in the nation’s most coveted real estate market.

Besides, skyrocketing prices and the pile-up of unsold inventory have made buyers wary—another possible bump in the road for Prestige, points out Mayank Saksena, managing director, land, and also head, South India, Anarock Property Consultants. Saksena adds that Prestige, which has so far mostly dealt with working professionals in the information technology services sector, would have to cater to Mumbai’s wide mix of service and business class customers with diverse requirements. “It is certainly a major challenge to enter such markets and capture them,” he says.

But Prestige is unfazed by the downturn and other challenges in the market. Its confidence stems from the fact that the company understands the market dynamic in Mumbai is different from other metros and it has found ways of being competitive. “The Mumbai real estate market works very differently,” says Venkat K. Narayan, CEO of the company. “There is no uniform pricing. A developer’s selling price in Thane will be very different from south Mumbai. Instead of making 40% returns, we can make less returns and make the product a lot more competitive. I think anybody who plays this game will be a differentiator.” A veteran Prestige executive, Narayan was the company’s executive director of finance and chief financial officer before taking over the CEO’s mantle last year.

Razack, who has been thinking of moving into newer markets such as Mumbai for close to four years now, says he has done his homework. “We are evaluating property by property. We have got our foothold in cities such as Hyderabad and are also building properties in Chennai. In both the cities we currently have malls. Both are doing extremely well. We have also worked in tier II cities such as Mangaluru and Mysuru,” says Razack. However, the learning has been that tier II cities do not have the momentum of metros. Hence, the decision to focus on larger markets such as Mumbai and the NCR. “We decided to use the same energy and effort in larger markets,” he says, adding that the company won’t be looking at new residential projects in tier II cities after wrapping up the ones on hand.

Prestige expects two things from its decision. “It gives us a lot more visibility nationally and acceleration in terms of revenue growth,” explains Razack. His own reading of the market is that sales of villas and luxury apartments are slowing, but mid-segment apartments are doing well. “There is not much of stress in selling mid-segment residential properties,” he says. Juggy Marwaha, executive managing director, Jones Lang LaSalle India, a real estate consultancy, who has been working closely with Razack on deals for the last five years, says Prestige would be looking at mid-size markets in these cities.

The company’s NCR plans involve a residential project aimed at mid-income buyers in Noida, and a commercial office complex in Gurugram by the end of the current financial year. In the NCR, Prestige will be up against a host of established developers such as Tata Housing Development, Mahindra Lifespace Developers, Godrej Properties, and Shapoorji Pallonji Real Estate. The key to cracking these markets, according to analysts, is right pricing and small ticket sizes. Many cite the success of Bengaluru-based Sobha Developers, which launched its first luxury apartment project in Delhi-NCR in 2016. In Pune, Prestige is looking at building a tech park in Kharadi, a city suburb known for its IT business parks.

In a market spooked by news of unsold inventory, shaken buyers’ confidence, delays in projects, and cash crunch, a good name and track record mean a lot. Marwaha of Jones Lang LaSalle India believes that Prestige’s ability to deliver projects on time will stand it in good stead. About 80% of Prestige’s residential projects get sold in the first 12- 18 months of their launch, giving it much required capital cushion. As of September, the real estate major has completed over 102 million sq. ft. of total construction since it began more than 30 years ago and has some marquee projects in south India to its credit that include luxury hotels such as Conrad and Sheraton Grand in Bengaluru and Forum mall across six cities. In FY18, Prestige Estates Projects reported ₹411 crore in profit, up 14% from the previous year. For the first quarter of 2018-19, the company’s revenue was ₹893 crore with a profit after tax of ₹130 crore. With sales like that, it’s not surprising that the company’s market capitalisation has grown from ₹4,800 crore before it listed in 2010 to nearly ₹11,000 crore now with a compound annual growth rate of 12.5%. The company plans to deliver 10,000 residential units in FY19. It has completed about 3,500 homes this fiscal year and has two more upcoming projects.

It is interesting that Prestige did not begin as a real estate developer. Razack’s father, Razack Sattar, opened a 600 sq. ft. men’s clothing and tailoring store, Prestige House for Men, in 1956 on Commercial Street in Bengaluru which has now grown to a 20,000 sq. ft. retail store.

The property business was started in 1981 by Razack along with his brother, Rezwan Razack. They initially just bought and sold land pieces in Bengaluru. In 1985, the brothers moved to real estate development from just trading of land and started what is today Prestige Estates Projects. “At that time, we didn’t realise that property development will be the core business. Today it is our prime focus. Currently, we are doing about 68 developments—about 64 million sq. ft. is under construction,” says Rezwan Razack, 63, joint managing director, Prestige Group.

Prestige has nine family members taking care of the core business and other businesses under the group. The promoters hold 70% stake in Prestige Estates Projects as of September 2018. Razack’s younger brother, Noaman, director at Prestige Group, is managing director at Prestige Fashions. Younger sister Anjum Jung, 48, is the executive directorinterior design and heads Morph Design Company, which is part of the Prestige Group, and her husband Omer Bin Jung, 50, is executive director of the hospitality business. Razack’s daughter, Uzma, 39, is director, corporate communications, and also heads Falcon Property Management Services, a group company in the facility management space. Her cousins—39-year-old Faiz Rezwan, executive director, contracts and projects; and Zayd Noaman, 28, executive director, CMD’s office—also play important roles in running the show.

“At some point in time we have to fade out and they have to come to the forefront,” Razack says about the next generation, which he hopes will ultimately take over the business.

It is only natural that Prestige should look for newer pastures to grow after establishing itself in the south, for, according to Razack, “change and growth are two things that you can’t stop”. Razack is also sure about another thing: “Real estate is a long-term play. Whoever stays invested will always benefit in the long term, if it is a good property.” Razack should know: He’s been in the business long enough.

(This story was originally published in the November 2018 issue of the magazine)