Who Are They: Shibanee Sagar(40) and Kamal Sagar(41)
What Do They Do: Architects, they are the brains behind Bangalore-based home builder Total Environment
Their Challenge: Offering customised homes with gardens at apartment-like prices
How They Did It: Rejected outsourced construction, developed in-house capabilities, built own software
What Next: Scale experience and know-how to much larger projects, expand footprint beyond (primarily) Bangalore
Swoosh! Kamal Sagar’s folder containing architectural drawings for his thesis went flying across the room.
His professor was livid. “I thought I had specifically asked you to not submit these!” he shouted.
Tired of seeing buildings sprouting plants and trees from all kinds of spaces — in his opinion, a sure shot recipe for water leaks and wall cracks — he had asked the young man to redo his assignment minus the shrubbery.
But Sagar submitted the same drawings again, earning a ‘C’ for it. The place was IIT Kharagpur and the year was 1990.
Six years later, he was putting the finishing touches to his first residential apartment block, Cirrus Minor, in Bangalore. But the smiles on the faces of Sagar and his three partners, all ex-classmates at IIT Kharagpur, as they totalled up the money earned from selling the 12 apartments, were short lived. The apartment block that had cost them Rs.1.32 crore to build had earned them only Rs. 1.12 crore.
“I have a solution,” said Sagar to his distraught friends. “We must build and sell a new apartment complex to make good this loss!” Their second project made a modest profit of Rs. 8 lakh for the four youngsters, but still fell short of covering their loss from the first.
Thus began the third.
Meanwhile his wife Shibanee, also a fellow architect, started offering buyers the ability to customise almost all aspects of their apartment interiors, including the walls. This added anywhere from three to nine months to the time it took to finish each apartment, translating into higher costs.
The extent to which Shibanee understood her customer’s preferences was evident from the fact that she would get distraught calls from them on weekday mornings, asking “Where can I find the chilli powder?” Shibanee knew better how the kitchens of her customers were organised than the customers themselves!
Cut to 2005. The Sagars had just spent the last four years acquiring contiguous plots of land next to a scenic lake in Bangalore’s Whitefield suburb, all adding up to 24 acres. As word of this got out among other real estate firms, they got phone calls from two of the city’s leading ones. They were willing to pay them Rs. 300 crore to sign over the land they had spent Rs. 35 crore acquiring.
They refused, instead using the land for Windmills of Your Mind, a super premium residential project spanning 400 villas and apartments, their firm’s largest ever.
“But I can tell you when we finish the project by 2013 we will not make as profit even 50 percent of the offer we got just for the land as profit,” says Kamal, strangely nonchalant.
It’s tempting to think of the Sagars as the worst real estate business people in the country. And thank God for that, because their firm, Total Environment, probably makes the best homes in India.Gardens in the Sky
From 5,000 feet in the air, they look like 16 neatly manicured garden plots sitting next to a pretty lake. Then, as one descends, the gardens seem to rise up in the air, as if they’re floating. Keep dropping altitude and more details begin to emerge — parked cars, red brick exteriors, shimmering blue lap pools and lush Mexican grass that appears to be growing on rooftops. The 50 villas that resemble ‘aerial gardens’ and another 350 apartments housed within 7 blocks a short distance away comprise Total Environment’s Windmills project, simultaneously its biggest and most ambitious yet, while remaining true to its design heritage.
If you don’t live in Bangalore, then chances are you may not have heard of Total Environment. But under the exacting architect eyes of Sagar and his wife Shibanee, the company has built itself a solid reputation as a builder of innovative, intuitive and well-made homes targeted at the upper middle classes. “Total Environment products are premium in terms of specifications, possibly one of the best in the country,” says Vikas Chimakurthy, a director with private equity fund, Kotak Realty Fund.
This has happened because Total Environment has skilfully straddled the space between custom, architect-designed homes that not everyone can afford; and mass-produced apartments that not everyone will like.
By keenly observing and listening to the needs of individuals and families, instead of buyers and investors, Total Environment is able to design apartments that are thoughtful and elegant. For instance the concept of a private garden for every home on every floor came about from the resistance the Sagars encountered among Bangalore women when they were selling their first project. “Most of them said they would prefer their own independent bungalow to an apartment. When we asked what the difference between the two was, the most common answer was a garden. So we thought, why couldn’t all our flats have a garden?” says Shibanee.
A central vacuum system at Windmills has ducts around the house where a hose can be plugged in to suck dust into a central location. Maids can sweep in dust to valves in the floor using low-tech brooms, to be sucked away as well.
This design thinking extends to the finer details as well. Traditional Indian stones like Kota and Jaisalmer that are laid on floors and walls are polished eight times to a mirror finish; drip irrigation systems for private gardens; occupancy sensors that switch off lights automatically when no one is around. Doing this allows Total Environment to charge a premium of 10-15 percent in Bangalore over comparable projects, feels Chimakurthy. “That’s because it spends much more on building better homes than it is able to charge more from customers.”
Ironically though, even after charging these higher prices Total Environment is less profitable compared to its more conventional peers.The Apple Inc. of Homes
Real estate and consumer electronics aren’t exactly similar industries. But the company whose philosophy matches Total Environment’s the most is the relentless tech innovator Apple. Apple has followed a contrarian path than its peers when it comes to creating new products.
Take the iPad for instance, where Apple controls almost all layers: Hardware and design, processor, operating system, software development platform, app store and even retail outlets.
Its competitors like Microsoft, Google or Samsung are only present in a subset of these segments. Like Apple, Total Environment insists on doing all of its building construction in-house, whereas the industry standard is to outsource it to contractors.
Apple also has an unwavering focus on small details, like the way the iPad 2’s protective cover also doubles up as a stand for it to rest on, or the way its screens are coated with an ‘oleophobic’ material to prevent fingerprint smudges. Total Environment’s occupancy sensors and drip irrigation systems are similar examples of its own finicky eye for detail.
“I realised early in my career that Indian clients don’t usually want to pay their architects fairly. This leads to many architects surviving by taking money from contractors. But as an architect I wanted the contractor to be in my control, which is not possible if he is paying me,” says Sagar.
Doing its construction in-house helps Total Environment maintain quality while allowing for costs to be reduced by engaging in more scientifically designed processes. “Building to our entry level specifications costs us Rs. 2,000 per square feet, but if we outsourced it we would need to pay roughly Rs. 2,400,” says Sagar.
Total Environment even manufactures all the furniture and woodwork that go into its homes from a fully owned workshop in Bangalore that employs 200 people.
Where most builders offer little to no customisation, Total Environment literally forces it upon all its customers.
“We didn’t offer customisations in our first project but people did them anyway. So we started offering it formally,” says Sagar.
The company today offers its customers an unprecedented level of customisations through a self-developed software package, eBuild. Built at a cost of nearly Rs. 10 crore since 2004, according to Sagar, the software allows customers to change almost any element of their home including fixtures, electrical, landscaping and even walling. “Even though I think it is still only 60 percent ready, using it we were able to completely customise 76 apartments at Windmills in just three or four months. I have budgeted to spend another Rs. 6 crore on developing it fully by 2013,” says Sagar.
The last big area where Total Environment treads a contrarian path is by having its own employees maintain all sold homes. “Doing maintenance is a thankless task because people don’t want to spend money on it. We are still incurring losses on it after all these years because in most cases we end up solving problems at our cost. But we also realised it is the best source of customer inputs that can feed back into the designs of our next project,” says Sagar.
The Challenge of Scale
Because the Bangalore real estate market is not as deep as Mumbai or Delhi, there is a limit to the volumes that a high-end developer like Total Environment will be able to sell. This, in turn, impacts the premium the company is able to charge. In Mumbai or Delhi, a developer like Total Environment would have been able to charge a higher premium than Bangalore as well as sell more units,” says Chimakurthy.
“It will be important for Total Environment’s promoters to decide what sort of a company they want to be — niche or large scale; targeting the upper middle class to lower rich class, or masses to middle classes? There are huge differences between them, and it’s not easy to co-exist everywhere,” says Ravi Ramu, ex-CFO of one of Bangalore’s publicly listed real estate companies.
It is a valid question, and one that Kamal and Shibanee too are trying to grapple with. Total Environment’s revenue this year will be between Rs. 200 crore – Rs. 220 crore, though up from Rs.140 crore last year, is still too low for it to make any ambitious plays.
“Delhi and Mumbai are too big and overwhelming when it comes to approvals and buildings. Instead we are focusing on cities like Chennai, Hyderabad, Pune or Ahmedabad — all very similar to Bangalore,” says Sagar.
In those cities and Bangalore, Total Environment wants to work in much larger formats compared to what it has done in the past. Projects with scale will help it justify doing construction and furniture in-house, as the high cost of employing and training workers in those areas can be offset over a larger number of apartments.
“We also want to do larger projects covering, say, 100 to 1,000 acres, where we can have a much wider design field to play with,” says Sagar.
As it attempts to scale, Total Environment is also trying to institutionalise its processes and learnings so that its dependence on Kamal and Shibanee can be reduced.
As part of a massive project, the company is documenting standard operating procedures, SOPs, on a host of activities ranging from how to maintain a diesel generator to training a new security guard to laying Botticino marble.
The same project is also identifying experts within the company in certain areas, like for instance laying exposed brick walls, and turning them into internal trainers. “In Bangalore I visit sites every week, obviously I can’t do that in other cities. So the only option is to document our processes and create subject matter experts,” says Sagar.
The final goal, he says, is, “When it comes to real estate there is no name that comes like a benchmark. Our dream is to be [the] Ferrari of homes.”
Though that may take a while, Sagar can take consolation from the fact that in 2003 when he visited his alma mater IIT Kharagpur to hire its graduates for Total Environment, the very same professor who sent his drawings flying across the room in 1990 remarked to his colleagues, “See, I told you this boy was destined to become big!”
(This story appears in the 06 May, 2011 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)