SmartOwner and the art of hiding in plain sight

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    One side of its platform has its back to the wall, the other wants its pound of flesh. One side is desperate for money, the other greedy for returns. One side is ruing the death of an easy business model, the other yearning for a market-beating asset class.

    All around is the murky swamp of real estate.

    In the middle sits SmartOwner, run by smarts and shrouded in secrecy. And working backwards to retrofit a legal structure into a business model.

    Analyzing the platform

    No one can say with conviction what it really is. Is it a crowdfunding platform? Perhaps. Is it a fractional ownership platform? Maybe. Is it a real estate broker? You could say that. Is it an investment platform? Definitely.

    A question is posed to Vikram Chari, SmartOwner’s co-founder and chairman, “Do you see yourself as a broker or a financier?”

    A bit of both, he says.

    After trying his hand at investing in real estate in the US, Chari moved to India after being nudged by some friends. And like most returnees, he started investing in early-stage real estate projects, called “pre-launch” in real estate parlance. In the realm of real estate speculators, buying and selling pre-launch properties before the developer sold the units to buyers. When the developer found an end buyer for the units, Chari made money for his customers by selling the stake in the company and the units that were blocked against the investment.

    “It’s practically a real estate broker who’s setting up an AIF (Alternative Investment Fund) to get the best deals,” says Vivek Mimani, partner at law firm Khaitan & Co.

    According to a progress report of the company reviewed by The Ken, out of the 18 projects SmartOwner has funded, the company has given a return of 20-31% return on investment per annum since 2012. This is closer to returns offered on equity share of some of the top public companies.

    “It sounds like these guys have already done something and now they are trying to put together the legal route to do this,” says Roshan D’Silva founder and CEO of holiday home rental portal Tripvillas, when asked about the company’s move to set up its own private equity fund i.e. AIF.

    Perhaps it’s time to understand what exactly it is that SmartOwner does.

    Smelling opportunity

    India’s real estate boom in the 2000s turned property into a commodity. Before the government reformed the sector with a new set of fairly stringent laws, residential property development was largely opaque and rested on the easy model of developers “launching” new projects, collecting money from buyers, then using some of it to start constructing what they promised, and diverting a lot to other projects.

    But customers eventually wisened up. As a result, developers and prospective customers were often stuck in a game of chicken and egg, one waiting for the other side to book an apartment and pay some upfront money, the other waiting for prices to drop further.

    It was into this downward spiral that SmartOwner launched in 2012.

    By 2016, a new real estate omnibus law, the Real Estate Regulation and Development Act(RERA), put many conditions on how developers can use the money they get from home buyers. This made finding cheap capital even more difficult for real estate companies. Those who can still eke out some credit from banks will do so. Some can seek institutional investors such as Blackstone or GIC, but these investors usually look to invest in large developers with a diversified portfolio of commercial and residential real estate.

    SmartOwner spotted this distress and packaged it as an opportunity. They tied up with real estate developers desperate for cash, but unwilling to drop prices in public, and started offering discounted rates in private to investors.

    Their website lists numerous properties in which you can invest, but almost none have any identifiable locations, brands or details. The developers only want genuine buyers, says Chari. So only investors who have evinced strong interest get details of the projects personally.

    In other words, secrecy is a filter for identifying genuine customers.

    Through a network of related companies, it takes in money from investors and uses it to finance real estate projects. SmartOwner takes a 6% service fee on the amount invested.

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