This Proptech Is On The Move
Strata co-founders believe technology is at the center of the most important trends shaping the real estate space
Innovation is synonymous to change. It opens up new pathways and gives birth to even better ideas. Similar to medicine and engineering, real estate has also evolved into something different, or should we call it smart.
The number of real estate technology startups has increased 300 per cent over the past decade, seizing the opportunity to address the industry's biggest challenges through technology. Data released by JLL suggests that opportunity continues to abound in the sector's startup landscape, with over $9.7 billion of funding activity in the first half of 2021, the most active first half on record. Additionally, the market shows signs of maturation as funding begins to shift toward established players and increasing consolidation drives the emergence of industry leaders.
While real estate technology adoption was on the rise before the COVID-19 pandemic, it has become essential for today's leading real estate players such as Strata.
Strata co-founder and chief executive officer Sudarshan Lodha believe that technology is at the center of the most important trends shaping business and real estate. That includes hybrid work, health and safety, and sustainability initiatives, all of which are in high demand. That's why we expect funding within this sector to break records this year.
Besides pioneering the fractional ownership model in India, Strata claims to be the market leader in the industry, today. Now while the industry has been maturing, it is still quite nascent as commercial real estate in India was never accessible as an asset class to the masses before.
"The idea for Strata came from our own personal experiences: I and my co-founder Priyanka Rathore hail from the commercial real estate (CRE) industry and we realized that despite the fantastic investment product that it is, most investors in India were uncertain about investing in CRE. This was mainly owing to a lack of awareness, knowledge, and inaccessibility of smart data that can help one to make informed and confident investment decisions. CRE, therefore, has always been the best-kept secret in investing accessible only to the crème-de-la-crème audiences which included the HNIs' NRIs' and the investor community," Lodha told Entrepreneur India in an interview.
According to him, for decades, CRE has been the only asset class to offer double-digit returns y-o-y and excellent capital appreciation too. It has been one of the rare asset classes offering consistent returns anywhere between 8-20 per cent vis-a-vis other stable asset classes. Despite this, mass audiences across the country were giving this exceptional investment product a clear miss. This is when Strata stepped in to bridge the gap and drive the grand vision of democratizing CRE as an asset class in India for the audiences at large.
Within just two years since its launch, with over 12,000 investors and an AUM of INR 3.2 billion, Strata established a leadership position for itself. The company is currently pursuing its ambitious growth plans whilst eyeing new assets across the key metro markets in the country.
"Our mission is to drive accessibility, transparency, and affordability in commercial real estate investment with our in-depth real estate expertise and strong data analytics foundation through our fractional investment model. By reducing the ticket size, Strata envisions democratizing this premium asset class like never before. This will help bring a larger set of investor audiences beyond UHNIs and HNIs into this realm," Lodha shared.
The company has executed eight investment rounds in assets across multiple locations in the country. The current portfolio of INR 3.2 billion consists of property around Hosur Hyderabad, Mumbai, Bengaluru, and Chennai. It is now aiming to scale up the current AUM to INR 12 billion in the next year.
In March 2020, Strata raised $1.5 million funding in a Seed round led by SAIF Partners and Mayfield India. Most recently, they raised $6 million in a Series A funding round led by Kotak Investment Advisors and Gruhas Proptech. This round also included investments from their existing investors like SAIF Partners and Mayfield India to retain their stake. As this funding round happened as recently as July 2021, there are no immediate plans to raise any more funds.
CRE in India is a multi-billion-dollar industry that continues to grow each year. Driven by a growing formal economy, premium commercial properties such as tech parks, data centers, warehouses, etc., CRE undoubtedly represents one of the most lucrative investment opportunities. Besides offering fourfold rental yield vis-à-vis residential assets it also offers investors diverse opportunities across asset types and locations. Even if one considers annualized returns and undertakes yield comparison with other investment options, CRE has offered a 10-year CAGR of 17.29 per cent when compared to other asset classes such as Gold (7.21 per cent), Residential (8.98 per cent), and even Sensex (9.05 per cent).
The proptech decided to address the concerns of large capital requirement, need for due diligence, high risk of delays in approvals, lack of easy access to Grade-A investment opportunities, the personal onus on management and operations, and liquidity risk by curating inclusive products which will not only ensure the most premium Grade A properties for its investors but also would take care of other associated risks and complications.
Lodha believes that when Strata commenced its operations, they were one of the pioneers to introduce fractional ownership in commercial real estate in India. However, over last year, the industry has matured considerably with multiple players entering and building a more robust marketplace for the investors at large. However, despite the growing competition, the industry in India is still very nascent and the market is very miniscule when compared to other asset classes in the country. The divide is even more immense if the industry is compared to international markets such as the US, UK or even Singapore. Internationally, fractional ownership is being practiced for a while now, where high-ticket properties are in demand not just for investment but also for leisure.
In India, the COVID-19 pandemic acted as a trigger encouraging rapid growth in the industry. With unprecedented economic challenges, investors were open to exploring emerging and alternate investment classes like fractional ownership. This was more so because real estate besides being tangible is the darling of investors owing to its sustainability factor.
In India, in 2020 alone, around 2.6 lakh apartments were sold, of which 45 per cent were undertaken for investment purposes. In other words, about 1.2 lakh apartments were acquired as an investment, wherein a single apartment fetches an average of INR 50 lakh. So, they are talking about INR 60,000 crore investment going into residential, offering returns in the range of 2-3 per cent which is exactly the market that Strata is eyeing.
While fractional ownership started with Grade A office properties, but during COVID-19 and following the industry has witnessed big demand for other assets classes inclusive of warehouses, industrial, and data centers. Besides these, luxury homes, hospitality, and healthcare assets are also likely to join the bandwagon soon.
"At Strata, we plan to continue being the category leaders in fractional ownership and would focus on building ourselves as a tech-first CRE investment platform bringing transparency and a data-driven approach," he explained.
The company also plans to plan to scale up its current AUM to INR 1,500 crore by end of FY22 by adding more premium commercial properties to its portfolio thus widening its geographical presence. With its expansion plans underway, it is aiming to partner with developers and large real-estate groups whilst expanding its footprint across the key metro markets of Mumbai, besides foraying into Delhi and Pune. They are looking forward to scaling up aggressively in the next few quarters and will be strategically expanding its footprint across the key metro markets.