Investor’s query: Is it worth investing in the public issue of Embassy Blackstone Real Estate Investment Trust (REIT) in India?
Gerard Colaco: Embassy Blackstone REIT (EBR) appears to be India’s first genuine REIT. However, I will very definitely NOT invest in its public issue. I will wait for its units to be listed on the stock exchanges, after which I will allow at least 6 months to pass for the initial hype (if any!) to die down.
One danger I see is that the promoters appear to be including their own properties in the EBR. I do not know how these will be valued. I also do not know whether this is ethical and allowed by SEBI. I suppose there will be the required due diligence. But would the valuation be in favour of the promoters and against the REIT investors?
The fact remains that the EBR is the first of its kind. There is no other comparable investment to benchmark it against. Whatever benchmark index is chosen is fiction. This is because there are no large, continuous and fluid markets in real estate, unlike in equity.
For example, you may be in Calcutta or Cochin, but the shares of L&T you buy on a given day are absolutely identical to each other. That is why they are called EQUITY shares. But no such uniformity exists between two real estate properties in these two cities. Forget different cities, two pieces of neighbouring real estate in the same city can be startlingly different. No benchmark can take these dynamics into account.
So a benchmark ‘index’ for a REIT would be one of the more exotic forms of lunacy. But if you had a bunch of say a dozen REITs all of which have been in existence for a year, their relative performances, expense ratios and rental yields may provide us with some really relevant insights.
Therefore, I would go easy on this. My initial investment, if at all, will also be the bare minimum, more a first-hand experience rather than a serious investment. As more REITs are available in India, these will certainly be made a part of the investment portfolio of our clients. Real estate, when institutionalised correctly, with the emphasis on correctly, can be a good investment.