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Monetization of Infrastructure Assets in India: Unlock Real Estate Value Through the Shopping Mall

Dec 27, 2017 12:00 PM 3 min read

Retail shopping malls in India have become a part of the urban landscape, but they struggle to survive. According to a study by Jones Lang Lasalle conducted in 2015, only a little over 10% of the malls in National Capital Region were profitable.


Unprofitable malls can be broadly classified into two categories. Firstly, retail malls that have poor planning and management and therefore struggle to establish themselves. Such malls have the potential to turnaround with higher quality anchor tenants, better mall and tenant management. The second category of malls are those that have no potential as a retail mall due to poor catchment areas and haphazard planning.


The latter kind can be of interest to a patient and adventurous investor, providing them with the opportunity to create urban infrastructure catering to the rising needs of Indians and reap profits in the long run.


In cases where the development is deemed to be unfit for retail use, the underlying land needs to be looked at as a separate asset which can generate value through alternate uses such as health care services, organizing conventions and education centres. 

Restructuring Assets-Investment

Indian consumption needs are rising with an ever-increasing population and rising per capita income, especially in urban areas.


Urban infrastructure (such as hospitals, convention centres for trade and education institutions) has a wide supply gap and distressed malls can provide much-needed opportunities for land monetization. Moreover, monetization of infrastructure assets in India is likely to help turn unprofitable assets profitable. 


In the US, the conversion of malls into health care facilities including hospitals, nursing homes and clinics has been substantial. While there is the pre-requisite of adequate investment to redevelop a property, developers also need to adhere to strict guidelines to setup a health care facility. That being said, appropriate properties that can be obtained at attractive low valuations pose an opportunity for patient investors to develop health care centres in India to cater to the increasing metropolitan population.


In addition to health care services, with expanding Indian business and trade, there will be an increasing need for convention centres.


According to a 2017 study by ICCA (International Congress and Convention Association), India has 0.5% of the global market share in convention and exhibition centres and ranks 31st in the world, as compared to rival Asian economic super powers such as China at 8th.


Distressed malls can be converted into convention centres to realize the true potential of these assets. The conception of an ecosystem around convention centres will lead to job creation not only in the corporate ecosystem, but also within the hotel industry through trade and exhibitions.


Another sector in India that needs additional infrastructure desperately, given the demographics, is education. Struggling malls in the US have seen conversions that have allowed community colleges and preparatory classes to move into areas occupied by retail malls in the past. Distressed Indian malls present a similar opportunity for primary schools, technical education institutes and skill training centres to leverage the existing infrastructure.


Now, naysayers would assert that rents from medical facilities, convention centres and educational institutes cannot match retail mall rentals. Agreed!  The point remains that there is a need to identify mall assets that do not necessarily have a future as a mall even if they were given better management, anchor investors and tenant mix. Given the haphazard mall construction in India over the last decade I believe such properties are available.


One cannot overemphasize on the value creation of the above strategies for the entire ecosystem. The original owner of the distressed asset gets to monetize some value of the asset, investors get access to attractive investments, the economy gets better infrastructure to cater to increasing demand of the residents and most importantly, more jobs are created around the restructured property. One would even hazard to say that the societal value might exceed the financial value of the new infrastructure developed in some cases, creating some very attractive investment opportunities.


Originally Published in Financial Express