Image: Sudhanva Atri for Forbes India
Spread over 62 acres, Jitendra Virwani’s Embassy Manyata Business Park stands tall as one of Bangalore’s premier office parks
Jitendra Virwani, Chairman, Embassy Group
Rank in the Rich List: 70
Net Worth: $890 million
The Big Challenge Faced in the Last Year: While business was stable, there were disturbing signs of a real estate slowdown in the last year
The Way Forward: Virwani has a substantial commercial real estate portfolio which brings in steady rentals. A pick-up in IT demand would bode well for the company
This was back in 2002 but Jitendra ‘Jitu’ Virwani remembers a flight from Bangalore to Mumbai well. He was on his way to the most important meeting of his life. The emerging Embassy Group had just crossed Rs 25 crore in turnover and was about to start constructing a business park, its most ambitious venture yet. Till that point, it had only worked on standalone office buildings in the commercial space. However, the initial investment of Rs 20 crore was proving hard to garner. Just when there seemed to be no way out, Virwani got a call from the doyen of real estate in India, Deepak Parekh of HDFC.
Parekh had heard about this Bangalore-based developer who was showing signs of breaking out and wanted to see how he could help. And so, on a hot summer afternoon, Virwani and his chief financial officer A Gopinath found themselves in Parekh’s office at Churchgate, Mumbai.
Parekh and his trusted lieutenant KG Krishnamurthy (currently CEO of HDFC Property Fund) asked all the usual questions about the project. What impressed them was that the company had already managed to sign on IBM as a tenant—this guaranteed steady rental income. Also, Bangalore’s IT industry was about to enter a phase of sustained rapid growth and HDFC thought the company was hitting the right notes. Parekh, who had learnt about the Embassy Group from RVS Rao, who headed HDFC’s Bangalore office, wanted to see if and how they could work together. Never one to take too long to make a decision, he ended the meeting in 20 minutes with terse instructions: “Keep me posted every three months.” Internally, Parekh told his people that the project should not suffer due to lack of funds.
Today, Virwani’s Embassy Manyata Business Park stands tall as one of Bangalore’s premier office parks. Spread over 62 acres, it has 9 million square feet of office space and marquee tenants like IBM, Microsoft, Target and Cognizant.
The Embassy Group’s commercial ventures, along with the residential real estate business started by his father in 1970, have helped Virwani retain his place in the Forbes India Rich List. This year, he is 70th with a net worth of $890 million (Rs 5,340 crore) compared to $910 million in the previous year when he first broke into the list at 66th. Commercial real estate comprises roughly 80 percent of his business; the rest is residential. The commercial component is expected to come down to 65 percent in the next few years.
Virwani’s rise has had little to do with the way the real estate business is traditionally conducted in this country. Spend time with him and you realise that his success is as much about taking people along and building relationships as it is to do with luck, happenstance and a huge run up in land prices. “The company has been home to almost all of our top team from the early 1990s,” says Virwani, who sold a flat to Vikram Kirloskar, currently vice chairman Toyota Kirloskar Motors, in the 1980s. Kirloskar says most of his deals with Virwani have been handshake agreements.
Unlike some developers who consider only end-profits, Virwani is more focused on cash flows. He is not afraid to walk away from deals that would involve too much leverage. “Leverage without supporting cash flows is the death knell for any real estate developer,” he says. A decade ago, when developers looked at constructing office space, then selling it and moving on to the next project, Virwani was among the first to create a solid leasing business. Office spaces by the Embassy Group are only built against firm orders before construction even though this often means lower rates. (He keeps 10 percent of the inventory as excess in case a client has a sudden demand.)
A workaholic, Virwani is as likely to be in Bangalore where he owns warm blood pedigree horses or on a jet to Dubai where his wife lives. Once there, he is as inclined to party late into the night as he is to putting in 12-hour days. (When Embassy decided to sell a 50 percent stake in its office business to Blackstone in January 2012, an anxious Virwani was in Dubai awake at an unearthly hour, waiting for Tuhin Parikh of Blackstone to wake up in Mumbai.) And, at 47, he believes the best is still to come. “I believe that land talks to me. I just have to look at a piece of land and know if it works for me,” he says. Setting Shop
One thing is for certain: Virwani has real estate in his blood. His father, Mohan Virwani, was a developer in Bangalore. Rajesh Bajaj, senior vice president (corporate affairs), who has been with the Embassy Group for over two decades, remembers that time as one when builders did everything themselves. “There were no contractors and laying a slab took 45 days.
Completing the roof was an achievement,” he says.
It was at this point that Virwani was initiated into the business. In 1982, he enrolled in college but, by his own admission, he spent most of his time “bunking and going for movies”. Soon he got bored and would become a familiar presence at his father’s construction sites. Despite being driven away several times, he would keep coming back. He was put on the cumbersome task of getting permissions. This meant running around various government departments and learning patience, an invaluable virtue in this business.
It was in 1992 that the Virwanis decided to branch out on their own with Embassy Point, an office space development at Infantry road. Kirloskar first met Jitu Virwani then and they have been friends and business partners since. He was looking for office space around Airport Road. Virwani invited him to a building he was constructing and sold him a floor at Rs 850 a square feet. Kirloskar liked the price but needed approval from his grandfather Vijay Kirloskar. The two went to Pune. Approval granted, Virwani found himself on the Kirloskar private jet to Mumbai. By the time he landed, he had sold another two floors to Kirloskar Oil Engines Ltd and Kirloskar Pneumatic Company Ltd for Rs 920 a square feet. With that, Virwani had recovered the Rs 25 lakh he needed to put down as a deposit for the Infantry Road project.Learning The Ropes
The 1990s were marked by a slow and steady growth for the Bangalore real estate market. Virwani worked on two other developments, Embassy Square and Embassy Point, and cemented his name among office space developers in the city. Around this time, the city had seen that HAL Airport was bursting at the seams and there was a tug of war for where the new airport should be set up. Speculators believed north Bangalore was the favoured location but there was no clarity.
What Virwani did at this point nearly sunk him. He started buying large parcels of land in north Bangalore. His present land bank comprises 1,700 acres and is worth thousands of crores. But at that time, few were willing to pay him more than Rs 5 lakh per acre. This made him realise the importance of cash flows and the need to ensure that working capital is not stretched too much. While the company survived, Virwani, who was running the show, had a bitter split with his brother and father in 1999. According to him, they thought the business was worth a lot more than what the books showed: Virwani was forced to buy them out. Post the split, 74 out of 78 employees chose to stay with Virwani.
In the early 2000s, the Embassy Group began to really hit its stride. “We were the first to offer a lot of innovations in the Bangalore market,” says Gopinath. Embassy began to construct apartment complexes and introduced the idea of pre-sales, raising big money from NRIs.
In 2002, Virwani got serious about the commercial real estate market. Until then, Bangalore had largely seen standalone buildings. But multinational clients were expanding furiously and were on the lookout for integrated office parks where they could seat thousands of workers. Call centres needed millions of square feet of space along with food plazas, parking and power back-up. Importantly, global policies prevented them from buying office space. They needed to lease.
Virwani was among the few who noticed this trend and started a division to address the demand. “He is one person who understands the market very well,” says Kirloskar. In 2002, ANZ Infotech approached the Embassy Group for office space. Soon after, IBM came along. With two potential tenants, Embassy began to construct Manyata Business Park, which started as a 5-acre development and now spans 62 acres.
What differentiated him was that even before construction started, he had sold the first building to investors promising them a 13 percent annual return, which he would recover from the rentals. While this is common in the industry now, it was almost unheard of then. Most developers would want to sell the space, book their profits and get out. Virwani says he would rather pay a steady interest to banks and own the building after seven years.
Embassy’s office park business now covers over 14 million square feet generating Rs 696 crore in rentals per year. “Each one of our clients is a repeat customer,” says Sharon Rodriguez, who heads leasing at Embassy Group. Goldman Sachs, Yahoo, Fidelity, Microsoft and Google make up the client list. At a time when there has been a slowdown in the residential business, commercial real estate offers a natural hedge. On the residential front, Embassy is now working on six large developments totalling eight million square feet.The Road Ahead
By 2010, with 70 percent of the business coming from office parks, Virwani needed money for further expansion. Embassy planned to list and filed a draft red herring prospectus with an aim to raise Rs 2,400 crore after diluting a 25 percent stake. But by 2011, the markets fell and the Sensex went down to 16,000 by the end of the year; Virwani abandoned his plan. Looking at how real estate companies have been battered by the market, he now believes that he made the right choice. Plans to list have been permanently shelved.
Instead, Virwani got Blackstone to buy a stake in his commercial real estate business. Parikh, who heads the real estate practice at Blackstone, and Virwani had known each other from the time Parikh was with The Chatterjee Group. To raise money, he sold a 50 percent stake in three office parks to Blackstone for $480 million. Blackstone gets steady rental income as well as any appreciation in the price. Just this deal ensured that Virwani had got as much as he could have from the IPO.
Going forward, Virwani plans to continue expanding the office business at a pace of about 20 million square feet a year. He is sitting pretty with a turnover of Rs 980 crore and expects this to increase to Rs 1,200 crore this year. And he knows that as long as the IT industry does well, he will continue to thrive. Add to that, he has the huge land bank in north Bangalore that he can work on over the next decade.
If there is one indulgence that he will never be able to afford, it is an S-Class Mercedes. He prefers the Land Rover. Ask him why and he says that when Parekh gave him his first Rs 20-crore loan, he had remarked, “I know you are going to buy an S-Class soon.” Virwani promised him he would never do that. He has kept his word.
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(This story appears in the 28 November, 2013 issue of Forbes India. To visit our Archives, click here.)