How Sandeep Runwal, director, Runwal Group, has followed a discreet path in the volatile real estate business – BY JAYASHREE MENDES
When you have taken over the mantle of running the family business that’s been around for more than three decades, you have not only settled in but may well have a clear run for the next decade or so. Then there’s the additional task at hand: You must make the business better and sustainable.
At a time when it is not uncommon for people to look askance at family businesses, there are a lot of important lessons to learn from them — from the value of long term thinking to the virtues of frugality. Moreover, most family businesses are known to keep to themselves and let their work speak for them.
All the above would aptly apply to Sandeep Runwal, director, Runwal Group, who took over the responsibility of the real estate business from his father, Subhash Runwal. But that is now. “There was a time in the nineties when our father preferred that we work in businesses outside real estate. Those days were far removed from the current scenario, as there was a latent fear about the real estate business,” says Sandeep. So the young Runwal, after completing his MBA from IIM (Bangalore) plunged into the pharmaceutical and steel business that his father had purchased as sick units. He turned around both the businesses and ran it for a few years. And in 2003-04, the Runwals sold off the steel manufacturing business. A couple of years later, having made a success of the pharmaceutical company, the family decided to exit this business and found a buyer in a US MNC so that they could devote themselves to the real estate business. The fact that there’s a family business to be inherited and run, not to forget a sense of ownership, were some of the reasons that contributed to Sandeep’s decision.
The call of the mall
By then, the experience of running the numerous businesses had taught the scion a few things. A constant refrain throughout the interview is the importance of sustaining a business in the long run. Probably, it is for this reason that the company has been a strong and consistent player in suburban Mumbai and created developments that continue to be landmarks within the area. The Runwals have also been alert to opportunities that came their way — could be a new arena of development, or a land parcel that has just come into the market. It is this business acumen that has led the group to develop more than 65 landmark projects in the residential, commercial and retail space.
One project that continues to be associated with the company is the R City mall project at Ghatkopar (Mumbai). Sandeep says, “In 2004, the US-based pharmaceutical giant, Wyeth Laboratories, was looking to sell its bulk drug manufacturing facility that stood on a 25-acre land parcel. Since we have a stronghold in this area, we bought this for our Ariane Orgachem, our pharmaceutical company. However, when we decided to exit this business, the land was converted from industrial use to residential/commercial.”
What stands in its place today is suburban Mumbai’s most famous landmark, R City mall. Besides being one of the largest retail properties in the western region, it is perhaps the only mall to have received funding from Singapore-based GIC way back in 2007. Currently, GIC holds a 50% stake in the mall, which is considered one of the best performing malls in the country. Sandeep says, “We worked with GIC for the mall. And have been lucky to have them as a long term investor in the property. We have nurtured the property from 2006 to 2016. In our business, it is important to rope in partners who not only put in capital, but also bring along expertise as they are one of the world’s biggest investors and manage several properties across the world.”
This partnership has worked well for Runwal as GIC believes in the India growth story and is here for the long run. “There is no pressure on us as they are not seeking to exit this partnership or encash their investment. This has helped us deliver the project. GIC is a strong advocate of best practices and policies happening in retail properties across the world and wants to recreate the same in India,” he adds.
At a time when the market was rife with rumours about developers wanting to exit the retail business, the Runwals continue to be steady and went on the develop three more malls in the vicinity. Speaking about the nuances of staying balanced in the retail space, Sandeep says that not every property is ripe for retail. “One has to determine the competition, and the purchasing power of the people. In Mumbai, people will not traverse the length of the city to reach a mall. When we started with R City, we did a thorough analysis.” Probably for this reason, Runwal launched the mall in two phases; Phase I was constructed across 800,000 sq-ft and Phase II in 400,000 sq-ft. Sandeep says they were lucky that the consumer cycle in India changed thus helping the retail industry.
There’s a way to buy
Considering that the Runwal Group has a prolific profile only in Mumbai and Mumbai Metropolitan Region (MMR), it is pertinent that they maintain sagacity in their dealings and purchases. One of the most critical factors for a developer is land purchase. Sandeep takes a quiet pride when he says that they are one of the most conservative developers in the region. “When we set our sights on acquiring a property, the ground work involves the FSI potential of the property, achievement in terms of sales, and valuation in the long run. In a market like Mumbai where land is scarce, few properties come with clear titles,” he adds. Importantly, it is necessary to replenish stock, which is an ongoing process. He says the company has stretched itself in the past when it found an ideal property that would be suitable for the kind of development they had in mind.
On the subtleties of buying land, he adds, “A decade ago, developers would purchase land parcels and leave it to appreciate for a few years. In those days, inefficiencies paid off. The math is different now. Today one has to look at turning around the land parcel very quickly. So when we buy land, we look at developing it very quickly. The construction business has a short gestation period of three to four years.”
It is with this view that the group paid one of the highest prices for a half-acre plot in Napean Sea road, Mumbai’s poshest locality. The Residence, which is expected to be launched soon, has helped the developer achieve the sales price that it wanted.
A practice that Sandeep and his team firmly believe and follow is timely delivery of projects, not to forget quality of projects. He is firm that a buyer should not have to make frequent trips to their office to inquire on the status of a project. So at a time when delays in execution are commonplace, how does he pull it off? “We are relentless in our pursuit of getting all clearances and approvals so that frees our time to focus on development. We also push our contractors to execute the projects as decided at the start of the project. Most middle-class families are resentful, one way or the other, with the increasing number of project delays. Sometimes, a project is delayed because of sudden changes in government policy, rules and regulations, or High Court orders that destroy time cycles. We try to overcome this to deliver on time,” says Sandeep.
A haunting instance was when the Runwals purchased a 10-acre land in Mulund in a court auction that had a factory running on it for 30 years. “The titles were clear, and we converted it from industrial to residential and started work on the project. We were up 25 storeys and the forest department declared all activities null and void. We were caught in a bind. With an absurd reason that put the blame on a collector who had forgotten to update records back in 1967 just does not make sense. We had sold 250 apartments and pumped in money. It is only a year-and-a-half ago that a reprieve was issued. In the meantime, the Development Control Rules have been amended and new guidelines from the Ministry of Environment & Forests have come in. We have tried to do justice to the consumers and returned money to those who cancelled bookings. But how do we explain the delay to consumers?” he asks. It piques him to know that restarting the project would take another two years.
With luxury projects on the rise and developers upping the ante, Runwal has got its priorities right in offering the suited amenities that go with every project. “Based on the property location and price, we decide on the amenities that need to be offered. We have formed close tie-ups with three companies who manufacture the products we require. And we work only with manufacturers. Our team frequently pay a visit to the manufacturer’s facilities to ascertain their credentials and take delivery only from their reputed suppliers,” says Sandeep.
In terms of construction too, Runwal has taken to modern methods of construction and formwork, including Mivan, to speed up construction. In their bid to stay environment-friendly, the developer has eliminated the use of sand that came into controversy a few years ago. It was a calculated decision to stay out of precast as any changes in development rules would affect the FSI and would mean scrapping the project.
On to the next phase
So what stops him from looking at markets beyond Mumbai and MMR? He says with a smile, “Real estate is a personalised business. We find it better to control our developments where we are physically present. I am sure Bengaluru, Chennai and Gurgaon make for great markets. But physical presence is important to me. We have enough work in Mumbai and MMR that keeps us busy.”
He is also happy with the new Regulatory Bill that has come into place. But he has a contention. “There is a requirement for a legislation to protect consumers, but if you notice the legislation is one-sided. It only serves to penalise the developer who is actually dependent on the administrative body, corporation and the government for approvals and timely clearances. While the developer is held to task, it should also seek to penalise the authorities who delay sanctions to projects on futile grounds,” he says with a frown.
Inefficiencies may have worked well earlier, but Sandeep is having none of it.