What Is Real Estate i-Banking?

Investment banking is all about mergers, acquisitions and arranging financing for deals and other companies. Real estate i-banking entails a little more of the same kind.

Investment bankers who specialize in real estate only have a lot more on their plate than those in other sector. That is because they are experts in helping seal land deals and other commercial deals for real estate companies.

Here are some tasks they specialize in:

1. Sealing land deals: Buying and selling real estate assets is mostly covered by brokers and real estate consultants, who do it across the gamut of commercial and residential projects in India. That leaves investment bankers in the sector to restrict themselves to helping seal high-end land deals. That would involve the sale and purchase of large land tracts for builders, special economic zones (SEZs) and other developers. Bankers who specialize in this area have good knowledge of land rates across geographies, have contacts with large land owners and big buyers and first-class knowledge of land laws across states. A few bankers also look at large property sales and deals which are residential. However, this is restricted to legacy properties, the prices of which run into hundreds of crores.

2. Mergers & acquisitions: Very few real estate companies look at inorganic growth through mergers and acquisitions. However, it is not completely unheard of either. Many builders of upcoming properties in India are now looking at diversifying into management of properties. Some are even getting into hospitality with serviced commercial properties, service apartments and even hotels. Investment bankers look for companies and firms that they can acquire and grow. I-bankers hunt and compile lists of companies that can be acquired and those who want to. They also facilitate both the companies during the merger process so that it takes place seamlessly.

3. VC and PE investments/funds: Builders of new apartments in India or commercial properties in India generally finance their projects by taking upfront payments from interested buyers. That is however only one way of raising equity for a project as it covers the requirement only partially. Real estate companies have to raise equity both at the project and the company level. Investment bankers arrange for these deals by bringing in local and international investors who are looking for opportunities to invest. They could be either private equity investors or venture capital funds depending on the stage of the project or the company. Some i-bankers also run VC and PE funds which are dedicated to the sector.  

 4. Initial public offers (IPOs): Helping real estate go for public shareholding by raising money through an IPO is what keeps most real estate i-bankers busy. After a builder decides to go public, i-bankers come in at the stage of making a Draft Red Herring Prospectus (DRHP), help the company prepare standard income statements for the last two years to submit to the regulator, build a board of directors if the company already does not have them, familiarize the company with SEBI rules and guidelines. More importantly, they sell the IPO to large brokers and institutional investors.

 5. Investing in REITs: Currently, i-bankers of real estate deal only with block deals in shares of real estate companies. After Real Estate Investment  Trusts are put in place by the government, i-bankers who have enough knowledge of the sector can use it for managing REITs, bringing in investors for REITs and even helping them start trading on the exchanges.

(The writer has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)