Amid the economic disruption of the pandemic, followed by the geopolitical tensions of current times and the increasing crisis of the price surge, businesses have been driven to consolidate or downsize to cut their losses or slow down operations until the heat passes. Despite all this, Gera Developments forayed into the American property market with projects in San Francisco, making it one of the first Indian companies to venture into the US market. SHRIYAL SETHUMADHAVAN virtually connects with Rohit Gera, Managing Director, Gera Developments, to capture his experience of executing projects out of the country and learn about the impact of the current scenario on his business.
Tell us about your four premium residential and mixed-use projects in the US.
We recently completed two projects in San Francisco and have started the sales process. Our US subsidiary arm, Outdo Inc, and our US-based local partner, March Capital, have equally provided funds and managed the development together. The first project comprises 23 studio apartments and a commercial space at the ground level. The second is a larger residential project with 130 1/2/3 BHK apartments along with commercial space. Both are residences in downtown San Francisco, with a total topline of about $160 million together. Of the other two, one is in the town of Lafayette, which will have apartments with a building area of 10,000-12,000 sq ft. We are hoping to start construction in the next two to three months. And the fourth project is in Moraga, for which we have acquired three land parcels separately; someone we are partnering with is acquiring the fourth. So we will have a 75-25 stake in that. At present, we are in the process of defining if the project will be builttosell or builttorent.
What led to you to eye opportunities beyond India?
We are a family business. My brother Nikhil has decades of experience in the real estate sector. We talked about the opportunities in the US market and decided that it would be a good idea to spread our wings into the US. Having him in California was a huge catalyst. It isn’t really some huge strategic master plan. Its more about being a family business and making the most of opportunities as they appear.
We have always been a fiscally conservative business with a disciplined and low debt approach. When we decided to foray into the US market, our approach was more or less the same. This has also led our credit rating in India at a corporate balance sheet level to be AA-, the highest credit rating for a private real-estate developer in the country. We decided to retain this approach while we go beyond our shores.
We invested in the US about three to four years ago, much before the pandemic hit. The permission to construct the first project in San Francisco came through around September-October 2019; we received financial closure and started work in December 2019. Three months later, the whole world shut down. The affordable housing segment is considered an essential service in California, owing to which we had certain disruptions related to broken supply chains and unavailability of materials. Else, we had a green light throughout the entire lockdown. The construction that began in December 2019 was completed two to three months ago, while the second building was completed one month ago along with procurement of occupancy certificates (OCs). Both projects were completed two months ahead of schedule despite the pandemic.
How has it been executing a project in the US compared to India?
The entire process of land acquisition in the US is clear. One negotiates a deal, puts property into the contract, gets a certain number of days for due diligence and, if something is wrong, they can walk away or go back and talk to the owners to renegotiate the price or pay the full price if satisfied. Acquiring land in India is fraught with unearthing things.
In the US, good and bad faiths are clear concepts and no one acts in bad faith because litigation is swift and expensive. For instance, we bought the land for one of our projects that had entitlements and approvals and so we did not have to go through the whole approval process. However, post-acquisition, one step in the process had been missed, which involved digging trial pits on land to check for the presence of any ancient remains such as burial sites or other heritage elements. We had the certificate of commencement with one step missing. In India, it would easily have taken us two years to cross that step. In the US, the town planning officials got on to a call – we did not even have to go and meet them – with us, the architect and our contractor. The first assumption was that it was a mistake and not that somebody got bribed. They accepted it was an error that simply needed to be fixed and suggested we start excavation and that they would intervene at a certain point to assess and check. In case they found a problem, we would be redirected to two agencies and the total delay caused would be three days. If human remains were found, the cost to exhume and correctly dispose of them would be about $75,000. They were that clear.
Another major difference is that once a project gets approved in the US, people get to weigh in with their opinion on aspects including elevation, colours, the name’s placement on the building, its size and font style. The good side of this is that everything is decided before the project starts.
Speaking of differences on the financial and the sales side, one cannot sell before getting the OC. We must have all the money to build; and in raising funds, nobody will lend us in parts if we don’t have complete financial closure for the project. Say it takes $100 to build a project. But as there may be mistakes and errors, we will ask our vendors to prepare financial closure for not $100 but $110. We put our funds in, they will give us the remaining money and, additionally, provide us with construction contingencies. Only then will they disburse the first dollar. In India, there is a belief that sales will perform some miracle; stakeholders will pitch in 20-30 per cent and a certain initial amount is applied for with a vague promise that the rest will somehow come in the future.
For site surveillance, we had an agency that set up three cameras for three vantage points, which monitored our site 24×7 from the Philippines. If they see something wrong on the site, they alert the cops from there in San Francisco.
Once, we had to block the street for 16 hours to do a large concrete pour. After applying for the permit and paying the deposit, we waited for seven to eight days. Once the permit arrived, it was done. No begging or cajoling – when they gave us the approval for construction in the beginning, they factored all this in. That’s an efficient system!
These differences make for great learning and we have taken away some best practices for our system.
Please tell us about any innovative or different construction technologies adopted in these projects.
One of the projects had a four-storey basement parking. The basement and the retail shopping level were done in concrete construction, and the remaining in stick or wood construction. Our buildings were lowrise; hence, we opted for stick construction. There are not just fire and construction codes but also design codes and acts for design equality such as the ADA for disability-friendly designs that we need to adhere to. This makes things interesting: if you have two bathrooms in a home, both need to have wheelchair access because a person on a wheelchair should not feel there is some part of their house they cannot access.
How does partnering with a local company help while undertaking projects globally?
Partnering with someone who knows the lay of the land certainly helps as they have existing contractor relationships, experience in constructing within Downtown, San Francisco, and know how everything works.It is important that such partnerships – as in our case with March Capital – thrive ona high level of trust, mutual respect and camaraderie.
Has the price rise impacted your projects in India, and how?
The cost increase has been brutal for us, like it has been for everybody. However, it is in difficult times that good brands do better. A large number of developers are slowing down projects because cash flow is difficult. Many have not been able to make sales and the financial equation has gone out of the window. We believe the situation is a longer-term crisis. The sooner we get used to the current prices, the lesser the chances are of them going down to pre-crisis levels. So mentally, we are of the view that the new prices are here to stay. We just have to recalibrate our mindset and continue to be aggressive in terms of driving completion.
