Bangalore's 'local boys': From middlemen to biggest real estate agent

Post demonetisation, the prognostications from experts have been coming in thick and fast. One uniform forecast seems to be - this move is likely to lead to a 20-30 per cent fall in real estate prices. So, one would expect the head of India's third-largest listed real-estate company to be worried. However, when Business Today met with the nattily dressed, 63-year-old Irfan Razack, CMD of Prestige Estates Projects, he was dismissive of even short-term, forget medium-term or long-term impact on the sector.

At best, he says, there might be chatter for a few weeks. When buyers realise there is hardly any downward momentum, things will settle down to business as usual, claims Razack. He outlines three reasons why prices will not crash. "Real estate is a cost-plus business. Net profit margins of most listed companies in the sector are in single digits. Nobody will sell at a loss. With RERA (Real Estate Regulation Act), I expect supplies to go down as all developers will not be able to meet compliances and requirements, which means actually prices are likely to go up, not down, as supply contracts. Third, real estate is not a perishable commodity and it is not as if more land is being created."

One could, of course, dismiss his comments as partisan commentary from an industry player. But over the past three decades, Razack has shown an uncanny knack to see beyond corners. Few would bet against a player who started in his father's small clothing shop and leveraged his relationships to become one of India's most powerful real estate barons.

Rise of the razacks

The Prestige Group's headquarters in the heart of old Bangalore, from where Razack operates, is aptly named 'Falcon House' - based on the group's emblem. The Falcon is a fearsome bird of prey known for its ability to fly at high speeds, change directions rapidly, and spot small things from great heights - traits that the group has displayed over the years.

A short distance from the opulent headquarters is the 'Prestige Shop for Men' set up by Irfan's father Razack Sattar in 1950 to sell fabric and offer tailoring services. Even today, the group retains the shop - though much bigger at 20,000 sq. ft now - which is run by his youngest brother Noaman. The prominent location of the shop meant that some of Bangalore's movers and shakers of an earlier era dropped in and were regular customers. Sattar's three sons - Irfan, Rezwan and Noaman - helped their father at the shop, and some of the relationships they developed eventually helped them.

Starting off as middlemen helping broker deals between buyers and sellers, they graduated by the mid-1980s to constructing buildings and selling them. It helped that margins were higher in this segment of the market. A reputation for delivering on time, emphasis on quality and a great ability to spot choice locations helped. They also played up their image of being 'local boys' - unlike others like Puravankara, Brigade or Sobha whose promoters originated from places like Pune, Kerala and other parts of Karnataka - when competing for joint ventures, which is where the old relationships helped.

For instance, when the now beleaguered Vijay Mallya was looking to redevelop a landmark parcel of real estate into UB City, what swung the project in Prestige's favour was their 'local boys' reputation, admits Irfan Razack. Over the past three decades of Prestige's existence, it has executed nearly 200 projects.

A realty check

For a long period of time, Prestige was a major player in Bangalore but virtually unknown elsewhere. Two things helped scale up the company - serendipity, and a carefully planned IPO. In the first decade of the 21st century, Bangalore emerged as the country's technology hub with local and multinational companies rushing in to set up operations. This meant influx of a large number of white-collared workers. Between 1991 and 2011, the city's population more than doubled.

All this activity meant that these tech companies needed good quality commercial office space and the workers in those companies needed homes/flats to stay. Also, with their high disposable incomes, these employees needed shopping malls to spend, which meant a retail opportunity. Prestige seized the opportunity with both hands. This was the serendipitous part. The company became a big fish in a growing market.

However, what gave it real momentum was a bet it made in 2010 to raise money through an IPO. Prestige's CFO Venkat K. Narayana remembers that the markets weren't very buoyant at that time, but they decided to go ahead. The Rs 1,200 crore it raised from the market helped the company take substantial bets.

For instance, in the past three years, revenue and net profit have grown at a CAGR of 20 per cent and 9.4 per cent over this period. Prestige has entered not only several adjacent markets like Mangalore, Mysore, Kochi, Hyderabad and Chennai, but even distant ones like Ahmedabad and Pune. Brokerage house Axis Direct pointed out in September that "management has been prudent in launching projects only after securing all requisite approvals, complying with RERA regulations".

Although it has widened its footprint and improved revenue mix (today it gets 80 per cent revenue from residential, 13.6 per cent from commercial, 4.5 per cent from retail, and the rest from hospitality), Prestige continues to bank on its core Bangalore market for growth.

A competitor with a more 'national' footprint who did not want to be identified says: "Prestige has also been lucky in the sense that the Southern markets in general and Bangalore realty market in particular has held up well. At least it is better than, say, a Mumbai or NCR market." Irfan Razack, though, admits that FY15 was exceptional, "but increasingly, we are also trying not to sell but lease our commercial assets so as to benefit from annual revenues". Securities trading house Motilal Oswal in a report pointed out that Prestige is likely to end up with annuity revenues of Rs 650 crore this year compared to Rs 520 crore in the previous year.

Even as the third generation of Razacks enters the business, the second generation intends to be in charge for the foreseeable future. Irfan's daughter Uzma is already a director in the company and Rezwan, the Joint Managing Director, also has his son working in the company. The promoters collectively own 70 per cent of the company's shares, and the family has spoken about moving all promoter shares to a holding company to ensure disconnect between ownership and management. For now, though, Irfan Razack is keen on continuing to build his legacy.