Morgan Stanley moves in with Bangalore developer

Meet the neighbours: Morgan Stanley breaks new ground by buying into an Indian property developer.
Morgan Stanley Real Estate has paid $68 million for a minority stake in privately owned Bangalore residential developer Mantri Developers. The size of the stake has not been disclosed.

The injected funds will be used to grow the company, develop the land bank and investigate new real-estate development opportunities elsewhere in India. Having appraised the market, Morgan says it chose Mantri by virtue of the depth of its managerial bench, led by founder Sushil Mantri, and its valuable land bank.

The Bangalore area is best known for its reputation as IndiaÆs æSilicon ValleyÆ, with many of the countryÆs leading tech companies based there. Mantri is a residential developer focusing on villas and high-rise condos in the area.

Indian infrastructure is world-famous for its shabby dilapidation, so is a direct investment in property a value proposition? Morgan Stanley believes it is, given that on average, a Mantri mid/high-range residential property sells for a modest $45 per square foot. However, the local record for a top deluxe home at $200 per square foot is also held by a Mantri development.

Morgan Stanley foresees a lot of potential upside in the residential markets there, with an estimated eight potential buyers for every new property that comes on the market.

Zain Fancy, head of Morgan Stanley real estate in Asia Pacific, will be joining the Mantri board along with colleague Sonny Kalsi. He says, ôThe demographic and social trends weÆre seeing in India are compelling. Over the next couple of decades 400 million people are predicted to move into India's cities, while across the country more and more college graduates and young couples are electing to live away from the traditional parental home. Coupled with all this is the availability of mortgage financing.ö

Morgan is flexible about the time horizon for this investment, but is envisaging a five-to-seven year frame. At the moment there are only two traded real-estate companies, and so by that time, there may be an exit route from this unquoted investment via an IPO or by bringing in another strategic partner.

This investment makes use of the February 2005 relaxation of Indian investment laws. With MantriÆs residential developments all in excess of 50,000 square feet, Morgan StanleyÆs deal falls into compliance with these regulations.

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