In June, the global private equity investor revealed two new deals in the country — the acquisition of a 2 million square foot mall in the northern city of Chandigarh for $108 million and the $350 million purchase of a special economic zone in the southern city of Chennai, which is expected to include 1.2 million square feet of retail space.
Having invested more than $2.3 billion in the Indian market, Xander also in May marked the 10th anniversary of the founding of its retail arm, Virtuous Retail in India.
In November, Xander and the Dutch pension fund APG formed a new venture for retail assets in India, in which APG bought a 77 percent stake for 20 billion rupees, or $300 million. Virtuous Retail South Asia Pte. Ltd. (VRSA) is now continuing the process of creating a series of new concept lifestyle destinations. These follow those already functioning — VR Surat, which launched in 2013, and VR Bengaluru, opened in 2016. VR Chennai is expected to open in early 2018. The new acquisition in Chandigarh is also expected to be rebranded as a VR flagship center.
Sid Yog, founder of both Virtuous Retail and The Xander Group Inc., is quick to point out that ‘mall’ is the wrong word for the VR developments – they are ‘retail and community centers,’ he said.
Although he is also now a senior lecturer of business administration at the Harvard Business School, teaching courses on real property asset management and investing in emerging markets, his application of concepts to life continues to be far from textbook. “It’s a synthesis of the opportunities that you get, the opportunities that you create, and what potential and scale you see in those opportunities themselves,” he told WWD, talking about his own journey into global investments in emerging markets, particularly in retail.
These opportunities have led Xander to bridge the gap between institutional investors, multinational corporations and financial centers like New York, London and Singapore, and investment opportunities in emerging markets like India, Africa and Latin America. The company also added the reverse process to its business model: Helping investors from Asia access attractive opportunities in developed markets, especially the U.S.
Yog spoke to WWD about the strategy of Xander, which began after a chance meeting with the founder investors of its first fund, Lord Jacob Rothschild (a top investment banker and member of the Rothschild family) and Mark Getty (a member of the Getty family), his vision of retail growth in India, and some key learnings about the market.
WWD: Do the two new acquisitions in June, in Chandigarh and Chennai, give Xander a new geographical edge?
Sid Yog: The acquisition of the North Country Mall in Chandigarh expands our retail footprint into north India. It has numerous portfolio synergies, and is value accretive to our stakeholders, including retailer partners.
With regards to the Chennai acquisition, it adds to our core-plus office platform and enables us to continue to demonstrate what value-added services can be brought to bear. Frankly, unlike the developed world, there are very few institutional investors in India, if any besides us, who have the capability to do this currently. So it certainly keeps us ahead of the curve.
WWD: The Xander Group was born in a somewhat fairytale manner, was it not?
S.Y.: It was a perfect storm in so many ways. It was completely unplanned but looking back, also extremely contextual and topical: The Indian government had just announced changing the norms to allow foreign direct investment to come into Indian real estate.
Personally, I was at a crossroads having just decided to start on something new. My meeting, quite by chance, with Lord Rothschild and Mark Getty, both of whom are amazing investors and human beings, resulted in a complete change of strategy for me. Instead of setting up an Asia-Pacific private equity real estate platform for one of the largest banks in the world, I decided to focus on India and set up my own venture. Jacob and Mark backed me in the first fund as anchor investors.
Also invaluable was the support of two of my advisers and professors from Harvard Business School, who helped in so many ways during that process and in fact ended up investing themselves, which was a wonderful show of support.
After being founded in March 2005, and closing its first fund on August 30, 2005, Xander set up its Indian investment advisory office in New Delhi in October led by Rohan Sikri, a previous colleague who at the time was working at CBRE, and who I was fortunate to be able to convince to join me on this journey.
WWD: You always stress that Virtuous Retail runs ‘centers,’ not malls….
S.Y.: If you think about it, this black and glass building in Whitefield, VR Bengaluru, is a reflection of our understanding of the city, in terms of its history and heritage, how the community around it is today, and its potential for tomorrow. We’ve been trying to capture all of that through the art of place making, of making spaces that resonate. We want our centers to reflect the community they are at the heart of.
What is also a unique differentiator is the experiential nature of what we are trying to create. We are not in the ‘shopping center business’ — creating bricks and mortar — but rather the retail brand which houses all these other great brands within it. That’s why we call ourselves the master retailer. We have been looking at creating big retail led developments with all kinds of cutting edge experiences built into it.
Over the last four to five years as online retail has affected malls all over the world, businesses are being forced to react. If you look at the United States, for example, there is a lot of fine dining and cinemas now being built into the retail. In India, or in Asia, it is different because a lot of these centers were built with multiplexes and food offerings to begin with due to the lack of other entertainment options. But we needed to bring in a lot of additional programming, and different kinds of reasons to bring people from the community to come and spend time here and make sure they have a seamless experience. It’s like bringing the forgotten concept of “main street” back in fashion. Bringing back the forgotten and usable public spaces which in India barely exist anymore.
WWD: You do have other mall partnerships, apart from the three VR Centers.
S.Y.: Yes, we do. Under the VR platform we now have four, 100 percent owned and operated centers and separately, we have four other big retail-led city center developments (In Mumbai, Pune, Kolkata and Bengaluru, where we are in partnership with other developers.) We continue to look for new opportunities both for development and acquisition under the VR platform, but also for creating partnerships as relevant with others if there is resonance.
WWD: Your listing of the top 10 markets in India was an interesting and an unusual classification.
S.Y.: We spent 15 months doing research on the markets we wanted to work in, and identified – not the top 10 cities – but the top 10 cities for retail in India.
The way we curated our strategy, it wasn’t just by per capita income, or by population or by someone calling a city a metro, but included measures like Internet penetration; demographics, the propensity to spend and other triggers that define cities that are early adopters of certain things. For example, Surat is a city of six million people – it is not small, and 75 percent of the city is under 30.
Or take Bengaluru, which apart from being a metro, is an early adopter. If you see, most retailers make their first product launches here. It is almost an incubation ground because the Bengaluru consumer is far more attuned with what is happening globally than some of the other markets in India.
We thought the markets through, made our list of the top 10 and originally said, ‘Let’s find the right locations in these cities and/or development partners’.
Then we ended up raising a significant amount of capital once we had curated and refined the strategy and identified the first few assets/partnerships.
WWD: How has your personal experience/work experience helped in this new venture?
S.Y.: The common theme of everything that I have done, is that its entrepreneurial, involves deep learning and being hands on, with the goal of creating sustainable and institutional new ventures and businesses with a focus on quality and brand — that’s what I really enjoy doing the most. And that’s what we have done again with Virtuous Retail – in creating the business and scaling it to its current avatar.