Welspun One Logistics Parks Fund 2

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About The AMC

With operations in line pipes, home textiles, infrastructure, steel, advanced textiles, and flooring solutions, Welspun Group is one of India’s fastest-growing global corporations. 31 original home textile technologies, some of the most renowned line pipe projects in the world, India’s first 14-lane green freeway under the Hybrid Annuity Model (HAM), and a sizable worldwide footprint have all enabled us to build solid connections with a distinguished clientele.

Welspun One logistics Parks (WOLP) is an industrial real estate platform, that seeks to provide an integrated investment, asset, and development management solution focused on the logistics & warehousing sector in India. WOLP is the only warehousing platform to be a part of a multinational – the USD 2.3 Billion Welspun Group. 

Fund Overview

Welspun One created India’s first AIF, giving local participants a chance to engage in the burgeoning warehousing industry. Welspun makes sure investments are carried out without the bother of actual ownership in a seamless and transparent manner. The SEBI-managed AIF advances the idea of the financialization of real estate by giving investors the chance to invest across the full asset creation cycle, beginning with land purchase, leasing, and development. Welspun’s main investing strategy is fusing extensive local knowledge and expertise with a wide range of institutional procedures, research, and analytics.

Fund Snapshot

Fund size INR 1,000Cr (+INR 1,000Cr green shoe)
Fund Type AIF Category II
Targeted IRR 20-21%
Tenure 6 years from first close
Project leverage ~65% of total project cost
Stabilized development yield ~9.5%
Exit cap rate 7.5%
IRR 20-21%
MoIC 1.7-1.8×1
Holding Period 3 years
Holding Period 3 years
Sponsor / Anchor Commitment INR 75 Cr
Fund Tenure 6 years from First Close (extendable by 2 years)
Commitment Period 3 years from Final Close (extendable by 6 months)
Initial Contribution 10.0% of capital commitment
Hurdle Rate 12-15%
Setup Fees Up to 2.0% of Capital Commitment
Operating Expenses To be charged at actuals, subject to a cap of 0.5% p.a. on Capital Commitment

Preamble – Where Does India Invest?

Real Estate – The Most Preferred Asset Class in India

Physical Real Estate continues to be the most preferred asset class for Indian investors for long term wealth creation and preservation – accounts for ~50% of household assets in India

Hassles of investing in physical RE

  • Buying and frictional costs
  • Leasing
  • Smaller lease periods
  • Illiquidity
  • Rent collection
  • Maintenance
  • Large ticket size
  • Development / counterparty risk

Warehousing v/s Residential and Commercial Real Estate

Warehousing development cycle is shorter, less complicated and has lesser possible bottlenecks compared to Residential / Commercial

Warehousing

Land Acquisition 

  • Large radius on the outskirts, within which land can be acquired
  • Connectivity to major highways, shape and terrain being important

Conversion and Approvals 

  • Conversion is a standard process, enough precedence giving visibility of timeline
  • Fewer and faster approvals

Financial Closure 

  • Favorable funding terms due to lower risk, infra status
  • Major part of construction cost incurred post-lease commitments

Development 

  • Horizontal structures with a short construction cycle, i.e. typically 9–12 months per structure
  • Relatively simple from construction/design complexity

Market /Leasing

  • Long lease tenure (9–20 yrs.)
  • Tenants spend equally or more on customization
  • Exit to Institutional buyers
WOLP Risk Mitigants
  • Acquire only aggregated land owned by credible individuals/corporates
  • Accurate land selections in predefined zones and thorough due diligence to help avoid issues with approval
  • Commence development primarily after receiving lease pre-commitments
  • Pre-Engineered Buildings (PEB) which are designed and built in factories, and directly installed at site
  • Strong relationships with credible tenants
Commercial / Residential

Land Acquisition 

  • Limited/expensive land in prime city locations
  • Multiple issues such as slum rehab, redevelopment, etc.

Conversion and Approvals

  • Multiple approvals from multiple authorities including local municipal body, state and central government
  • Time-consuming process

Financial Closure 

  • Banks are averse in the current environment.
  • Lower loan to value, higher cost of funding

Development 

  • Longer construction period of 3–5 years
  • Generally complex projects in terms of civil, mechanical, electrical, HVAC, etc.

Market /Leasing

  • Multiple buyers for residential project increases complexity
  • High marketing and brokerage costs
  • Tenants spend less on customization
India Warehousing – Opportunity
  • Warehousing stock expected to grow from ~300MM, sf to ~500MM sf by Dec-2025 at a CAGR of ~19%1
  • Multiple growth drivers
  • Favorable regulations, E-commerce – Tier 2 / 3 demand, In-city warehousing
  • Manufacturing growth
  • Significant interest from global investors

WOLP Fund 2

  • Participate in Grade A warehousing development
  • Only SEBI registered a platform of its kind offering participation to domestic capital
  • Inherently de-risked business model – buy land, significantly pre-lease and build warehouses, and exit to institutional buyers / REITs or INVITs
  • Limited development and leasing risk – low design complexity, short construction cycle and pre-leasing to Bluechip tenants with long term, sticky leases

WOLP - Expertise

  • Integrated fund & development management
  • Established track record
  • Cumulative AUM of ~INR 2,600Cr across 7 projects
  • ~7MM sf portfolio, ~5MM sf under construction
  • ~2MM sf delivered, ~1MM sf on track for delivery in 2023; ~3MM sf pre-leased to blue chip tenants
  • Tracking gross IRR of ~20-22%2,3,4 (pre-tax and fee) in the previous fund
  • Sponsor commitment of INR 75Cr (alignment of interest)
  • Team with 325+ years of total real estate experience
Warehousing: A Replay of the Commercial Office Story, but on Steroids

A similar cycle as office is being played out in warehousing but at a much quicker pace given mature capital market and defined REIT regulations

Commercial 

2005-2010

  • Limited Grade A office space
  • Arrival of MNCs and IT boom
  • Foreign funds partner with local developers

2015-2017

  • Consolidation by PE funds (Blackstone, GIC, Brookfield, etc.)

2019-2021

  • Listing of multiple office REITs: Mind space, Embassy and Brookfield
  • 2-3 additional REIT listings expected in 2023
Warehousing

2018 onward

  • Low Grade A stock
  • GST, consumption, e-commerce, and manufacturing growth
  • Global funds – c. USD 6BN for development

2021 onward

  • Aggressive consolidation: Blackstone created a ~USD 1.7BN platform with 3 warehousing players: Allcargo, Embassy and Hiranandani

2024-2025

  • Estimated listing of warehousing REITs
Multiple Drivers for an Explosive Growth

Favorable regulations

  • GST
  • National Logistics Policy
  • REIT / INVITs legislations
  • Infrastructure status to logistics sector
  • National master plan for multi-modal connectivity

E-commerce

  • E-commerce penetration expected to increase from 7% in 2020 to 17% in 2025
  • Tier II and III cities emerging as new consumption hubs

Manufacturing / industrial growth

  • Make In India
  • PLI
  • China plus one
  • Corporate tax rate reduction

Demand for quality, automation / emerging technologies

  • To address faster retrieval, flexible return policy and seamless movement of cargo
  • Increased throughput requirement

In-city warehousing

  • Last mile logistics
  • Reduction in delivery timelines from days to hours to minutes
  • Multiple 5,000-25,000 sf warehouses to service cities
  • Dark stores – E-grocery
  • Multi storey warehousing

About The Fund Manager

Yash has more than 15 years of expertise overall, including 13 years in real estate investing and asset management, during which time he participated in deals worth more than USD 600 million. Prior to joining Welspun One, Yash held the position of Principal at Proprium Capital Partners, an independent fund manager with an AUM of roughly USD 2BN (established in 2013 as a result of restructuring in “MSREI” – Morgan Stanley’s RE Investment platform). There, he played a key role in the establishment of the India office and was also in charge of managing the MSREI SSF III India portfolio and sourcing and executing new deals.

Yash began working with Morgan Stanley Real Estate Investment (MSREI) in 2007. He had positions in investing and asset management, including managing MSREI’s India portfolio’s assets. He has an undergraduate degree in electronics and telecommunications engineering from Mumbai University and a postgraduate diploma in business administration from the Welingkar School of Management in Mumbai.

WHY WOLP?

Key Competitive Strengths
  • Demonstrated track record: Track record of managing AUM of ~INR 2,600Cr across 7 projects1 Tracking IRR of ~20-22%2,3,4 in the first fund
  • Integrated model: Fund and development management platform captures value across the project lifecycle 
  • Seasoned management team: With cumulative real estate experience of 325+ years
  • Highest standards of governance: Well defined risk management framework
  • Investor focus / transparency: First of its kind offering which provides real time portfolio updates to investors
  • Asset management focus: Extensive usage of technology, robust SOPs and third party project management and oversight vendor to avoid cost and time overruns
  • Group lineage / strengths: Part of USD 2.3BN Welspun group, which has significant execution experience of complex infrastructure / industrial projects
Investment Thesis

Warehousing Development – an Inherently De-risked Business Model

Buy

  • Land identification strategy focused on requirements of 20- 25 large occupiers
  • Rigorous pre-closing due diligence process
  • De-risk leasing risk at the outset by seeking soft-commitments from potential tenants

Lease

  • Post-closing, conversion and approvals typically require 1–2 quarters (depending on city/region)
  • Converting soft commitments from tenants into formally signed lease commitments
  • Commence construction primarily on signing binding lease documentation and receipt of security deposit from tenant

Build

  • Horizontal structures with lower construction complexity
  • Use of pre-Engineered Buildings (PEB); designed and built in a factory and assembled on site
  • Relatively short construction cycle of 8–9 months per building
  • Subject to significantly lesser risk of time and cost overruns

Exit

  • Exit Strategy – Portfolio level exit to institutional investors or REITs / INVITs, Project level exit to institutional investors and Family Offices
  • Sellers market with more capital chasing relatively small stock of Grade A assets
  • Expected to continue for the foreseeable future

Key Risks

Capital Risk

Exposure to market, economic, business and political risks may have an impact on the Fund’s performance and may entail erosion of capital

Liquidity Risk

Close ended Fund with a tenure of 6 years (Extendable by 2 years)

Business Risk

The Fund is exposed to a number of business related risks including land buying, obtaining approvals, leasing, construction and exiting the assets

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Disclaimer: Investing Involves Risk. This document is for information purposes only and should not be viewed as a legal offering document or solicitation. Offers to invest in this fund are made only by the Discretionary Portfolio Management Services Agreement. Past performance does not guarantee future results and there is no assurance that the managed accounts will necessarily achieve their objectives. We do not guarantee any returns in the hand of investors not we take any sort of accountability for the performance of the scheme. The above-mentioned data is collected from the respected Fund house please verify the same at SEBI website.