Presentation to Witness Systems

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Real Estate Scenario Building Blocks for the IT
industry
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India City Overview
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India Key Cities
NOTE Delhi includes the suburbs of Gurgaon and
Noida and is technically called the National
Capital Region or NCR of Delhi
Delhi (Gurgaon Noida)
Pune
Mumbai
Hyderabad
Bangalore
Chennai
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City overview Mumbai, Gurgaon Pune

• NCR OF DELHI (GURGAON NOIDA)
• Very good quality Real Estate stock available
• Rapidly developing infrastructure
• Fairly cosmopolitan with a large expatriate
  community
• Huge Talent Pool
• Increasing concentration of BPO facilities
• Captive back-up power facilities a critical
  necessity
• Increasing migration from Delhi and neighboring
  cities
• Poor public transportation system
• Is likely to improve with the Delhi Metro Rail
  project
• Close proximity to Indo-Pak border

• MUMBAI
• The Financial Capital of India
• Most cosmopolitan Indian city with highly
  educated and trained workforce
• High living standard and cost, consequently
  highest manpower cost in the country
• Extremely reliable infrastructure as compared to
  the other metros
• Well established public transportation system
• Very high work ethics and productivity
• Real Estate is an issue for corporates as well as
  employees
• Correcting values creating opportunities for
  BPOs
• Suburban Locations

• PUNE
• Well developed industrial base
• Number of good educational institutions
• Availability of skilled manpower
• Expensive Real Estate as compared to other Tier-2
  cities
• Quality of Real Estate is poor to average at best
• Emigrating labor pool
• Poor Public transport systems

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City Overview Hyderabad, Bangalore Chennai

• HYDERABAD
• Proactive State government with aggressive
  business acumen
• Good supply of low cost IT labor, but.
• Low-end skills (Call centers, transcriptions
  etc.)
• Competitive Real Estate values but quality is
  very average
• Not perceived to be cosmopolitan with low
  migration from other urban centers
• Infrastructure gradually gearing upto explosive
  city growth in the last 2-3 years
• Accent issues for voice-based operations

• CHENNAI
• High concentration of industrial and IT
  investment
• Has declined in prominence since Gurgaon and
  Bangalore emerged as best locations for BPO
  operations
• High number of IT students graduating annually
• Accent issues for voice-based centers
• Emerging as a financial back office hub SCOPE,
  World Bank, Citibank etc.
• Lower manpower costs
• Good Work Culture
• Emerging as a cosmopolitan location
• Infrastructure Concerns
• Power and Water
• Overall quality of Real Estate is average
  compared to other cities
• Gets more of the non- voice work

• BANGALORE
• Indias Silicon Valley
• Skilled manpower available but at high cost
• Huge Talent Pool, especially for Tech Support
• Traditionally low manpower retention rates
• Overburdened Infrastructure (Power, Water,
  Transport)
• High cost of living
• Poor Power Supply
• Cosmopolitan city with high degree migration from
  other parts of India
• Large concentration of BPO facilities
• Easy availability of land for campuses
• Excellent weather around the year
• Absence of an international Airport

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What governs location selection decisions Ideal
Scenario vs. Actual Scenario
Manpower Availability/Cost
Manpower Availability/Cost
Physical Infrastructure
Ease of Starting Operations
Physical Infrastructure
Govt Policies
Real Estate Cost
Ease of Starting Operations
Origin of Promoters
Govt.Policies
Real Estate Cost
Origin of Promoters
By Origin of Promoters we mean, key decision
makers in a company and where they are based out
of e.g. If the CEO/Owner of Company X is based
out of Bangalore, he would like to set up and
expand existing operations in Bangalore itself.
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What governs location selection decisions Ideal
Scenario vs. Actual Scenario
Typical parameters governing location decision
Manpower Availability/Cost
Manpower Availability/Cost
In reality, location decisions are skewed
guided by other considerations
Physical Infrastructure
Ease of Starting Operations
Physical Infrastructure
Govt Policies
Real Estate Cost
Ease of Starting Operations
Origin of Promoters
Govt.Policies
Real Estate Cost
Origin of Promoters
By Origin of Promoters we mean, key decision
makers in a company and where they are based out
of e.g. If the CEO/Owner of Company X is based
out of Bangalore, he would like to set up and
expand existing operations in Bangalore itself.
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Implementation Plan Real Estate
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Transaction Management Process

• Accessibility issues
• Review disperse of relevant residential
• micro markets
• Availability of social infrastructure
• (schools, hospitals retail, entertainment,
• clubs, golf courses etc)
• Client discussion and recommendations

• Finalize spec wish list with
• inputs from PM AS
• Conduct parallel negotiations
• Validate final price

Deal Closure

• Evolve Pricing Model
• for Strategic Options (developer yield,
• marked to market, inflation, etc)
• Test price, lease, buy, phasing options
• (analyze clients cash flows)
• Obtain market (developer) Feedback
• FINALIZE DEAL STRUCTURE

• Assist in legal
• due diligence
• Assist in contract
• Preparation

• Market overview
• Market intelligence
• Initial shortlist
• Managing the RFP process
• Qual. quant. comparison
• Final shortlist

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Key Commercial Considerations

• Determination of Area Statements
• Net Lettable/Usable Area
• Gross Chargeable Area
• Assessment of Net Effective Occupancy Costs
• Monthly Rent
• Refundable Security Deposit
• Rental Advances
• Air Conditioning Cost
• Amenities and Building services
• Property Taxes and Maintenance Charges
• Tenures
• Lock-in Periods
• Renewal Periods
• Renewal Terms
• Notice Periods
• Transaction Costs
• Brokerage
• Legal Costs
• Stamp Duties and Registration

• Properties are usually Transacted on Gross Area
  basis, with Net Usable area being about 75 to
  85 of Gross Area

• Occupancy costs would usually consist of Monthly
  Rent and refundable Security Deposit
• Rental Advances structures are also prevalent
• It would be necessary to examine the other costs
  that would be included such as air-conditioning
  costs, maintenance charges, and property taxes
  these are matters of negotiation
• Security Deposits would need to be paid for Power
• Fit-Out investments are high since most office
  spaces are bareshell structures(Rs.1100/USD 23.9
  to Rs. 2000/USD 43.5 psqft)

• Leasehold tenures are usually of a maximum of 9
  years with lock-ins of 3 to 5 years
• Stamp duty costs in relation to occupancy costs
  are high
• In Mumbai/Pune, to reduce Stamp duty incidence,
  the tenures are 3 years with 2 consecutive
  renewals
• Renewable terms are generally negotiable with
  escalation either based on market or on
  cap-collar mechanism (Usually 20 to 30)
• Notice Periods may vary from 3 months to 6 months

• Stamp Duty charges vary significantly across
  cities and are dependent on the tenure of the
  lease (As high as 15 to 20 of Average Annual
  Rent)
• It is extremely important to be located in a
  building with conforming zone and having building
  completion and occupancy certificates

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Real Estate Selection Criteria
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Condition of Building on Handover

• The photographs depict a typical floor in a
  building which is ready for handover to the
  client.
• The standard building norms and what is provided
  to the client differs from city to city in India.
• Gurgaon as an example, has commercial buildings
  that provide A/C and Power Back-Up as a
  pre-requisite.
• Such buildings are termed as bareshell in
  Gurgaon whereas in Bangalore they are termed as
  warm shell.
• NOTE A Bareshell building in Bangalore does
  not contain the high side of A/C and Power Back-
  Up

Wet-Points
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Average Rentals Suburban Facilities
Malad
NH-8, MG Rd
Kalyaninagar
Guindy
Airport Road
Begumpet
Bareshell Rent
NOTE All Rental Rates are for Bareshell
buildings, except Gurgaon where the developers as
a norm provide the high side of A/C and Power
Back Up For the National Capital Region of Delhi
(NCR) we have taken the example of Gurgaon. Noida
another suburb of Delhi has rentals in the range
of Rs.10 to Rs.12 per sq ft per month for
Bareshell Buildings. Delhi itself has limited
Real Estate options for IT and IT Enabled firms
and therefore has not been included.
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Project Development Process
- Shortlist Architectural Teams - Architectural
Team Selection - Monitor Design Development -
Identify Work Package Scope - Inputs from AS on
operation efficiency
- Mobilize resources - Monitor timelines/cash
flow - Monitor variations correct - Contract
Management/Order Follow-up - Periodic Reporting -
AS Review on implementation
- Review and finalize general contract
conditions - Shortlist vendors - Select vendors
for packages - Map delivery schedules with
implementation schedule
- Steering Committee - Design Brief - Project
Milestones - Cost Estimate
- Installation Commissioning - Liaise with AS
for Hand-over - As-built documentation -
Close-out Report
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Facilities Management Process

• - Shortlist of Vendors for Services
• - Procedures formats implem-
• entation as per ISO 90012000
• - Schedule for Preventive Maint.
• Quantified Service Level
• efficiency

- SOP for all services H/K, Security, etc -
Monitor efficiencies of E M equip. -
Financial Management Reporting - Benchmarking
Property Mgmt cost - Review of Vendor contract
Mgmt. suggest improvement
O M Team Moves in for System Implementation
Routine day-to-day Operation Maintenance
Taking Over From PM
Implementation Of Audit review
Preliminary Facilities Audit
Operations
- Assets Taking over E M installation
Commissioning - Manpower Analysis O M Budgeting
- Preventive maintenance - Administrative support
liaison with with Govt. Bodies - Compliance of
Statutory obligations - Suggest / implement
Technical up gradation.
- Energy Audit - Security Systems Audit - Civil/
Fit-out Audit - Fire systems Audit - E M
equipment Audit
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Thank you

• The paper is prepared by CBRE India