A commercial real estate property that generates income from tenants, is called a preleased property. These preleased properties give the owner a very predictable and stable ROI. This type of lease is often reserved for A-grade/MNC clients, for extended durations between 5 to 15 years.
Most of the time, tenants themselves prefer to opt for a longer-term lease as it empowers them to best write off the furniture and fit-out costs – especially when looking towards the long run. Moreover, a registered lease agreement that clearly lays out all the T&C, rental schedules, and cash flow provides tenants with a lot more security in the long run.
Vacancy risk is something that must be taken seriously. This is something that can be minimized upon further scrutiny and evaluation but it is by no means that can inherently be mitigated. This is primarily due to the fact that it is the underlying risk for this asset class.
However, if we were to look at some strategies to which we can minimize vacancy exposure:
- The Tenant’s Stickiness: Depending on the tenants, and if they have significantly invested Capex into the premises on hand they tend to be quite a bit more sticky to the premises. On a general note, tenants experience costs around Rs.2000-3000 per sq. ft. As they incur these extra costs tenants want to amortize these costs over a longer tenure. This ultimately adds on to their sticky factor – making it even less likely that they will want to vacate. Moreover, the client’s or in this case the tenant’s customers, and employees begin to associate that location with their brand.
- Tenant’s Stability & Quality: Like with most business’s your clients and their background matters a lot more than one would like to think. For instance, A-grade and MNC clients more or less tend to actually stick to the agreed terms and conditions. Although there is no hard and fast rule, they are also a lot more likely to invest in their leased property and funnel money into its capital up-gradation during their tenancy.
- Micro-Market Fundamentals: This is something absolutely essential to understand if you hope to fully comprehend the dynamics of the demographics and fundamentals of the micro-market. This means getting a grasp of factors such as absorption rate, upcoming supply, tenancy profile, and vacancy rate to give a deeper reading into the stability and performance in the long run.
- Upscaling Intrinsic Asset Value & Quality: These are buildings that tend to be segmented from real estate’s demand cycle. A-grade buildings attract A-grade clients and tend to be the go-to for MNCs.
Fractional ownership platforms grant retail investors access to a tailored selection of options. Options of which have been thoroughly evaluated, and optimized and effectively attempting to mitigate the foreseeable risks. By opting for this, retail investors can reap the benefits a preleased property at the behest of the experience and expertise of that fractional ownership platform.
Here Is Why You Would Want To Buy Preleased Properties
- Preleased properties enable one to anticipate their monthly yields and annual cash flow making it a whole lot easier to plan cash flow in the long run.
- Preleased properties usually come along with long term commitments from MNC tenants, making them a very safe income-generating asset.
- Being able to access the right connections within the IPCs as well as network to serve all MNC needs, is often quite challenging. For instance, when a property isn’t leased the investor is not only faced with a vacancy risk, they are also faced with an operational risk – hence buying a preleased property on sale can also help you get more attention from investors as vacancy risk is nearly extinguished.
- Most MNC tenants prefer to invest a little bit of capital to do the entire interior and convert a usually bare shell office into a usable one and this improves the property’s quality.
- The A+ standards of the property tend to be maintained when it comes to long-term tenants – which is the case with preleased properties.
Preleased Properties in India and Their Locations
Myre Capital is a company that provides access to preleased properties across the country to both NRI and Indian customers alike. It stakes its presence in high-growth micro-markets such as Bangalore, NCR, Chennai, and Hyderabad. Myre Capital has always been one to explore micro-markets that offer the best results by making sure it buys preleased properties in locations in which there is both low risk and high demand.
Armed with state of the art AI and ML-driven algorithms, we use a highly data-driven approach while looking out for these micro-markets. This in turn presents opportunities where the intrinsic property value tends to be higher than the current market value. Over time, it is no surprise that this offers a very compelling capital appreciation benefit along with stable tenant relations.
The Way Myre Capital Makes A Difference
A great percent of these preleased properties tend to possess a very high demand, especially amongst MNC tenants. As an IT hub, India has been able to drive a lot of demand from tenants making it very lucrative to buy preleased property.
Secured tenants and more secure lease agreements trade off at a much higher property value and may even go up 25-30 crores because a very small segmented investor class is able to consider such investments.
We are a company that strives to lower the entrance barrier to retail investors by empowering participation even within institutional-grade preleased properties. Through our proprietary fractional ownership model, we were able to bring the minimum ticket price to only 25 lakhs – this means institutional-grade returns at only a fraction of the initial investment.
Myre Capital’s user base is made up of institutional clients, HNI’s family offices, and several retail investors. As a result, even HNI investors have begun to start favouring such platforms as they were able to diversify their CRE exposures across various properties in a multitude of cities rather than a very concentrated risk with merely a single asset.