Case Study #10 – Class A Industrial Warehouse + Rooftop Solar PV Plant (Case + Solution)

Case Study #10 – Class A Industrial Warehouse + Rooftop Solar PV Plant (Case + Solution)

This case study explores a development of a 40-acre warehouse in Kasara, near Nashik, India. This industrial case study combines rental income with solar energy initiatives. In this article, we’ll examine the financial strategies, including partnerships and funding, and the project’s five-year lifecycle with a video tutorial and link to download the case study at the end.

Practice makes perfect! This is a real scenario based on actual properties and situations. Names and locations have been changed for confidentiality reasons, but the fundamentals are real-to-life.

Each case study shared in this series mirrors real world situations, either in terms of the types of deals you will look at in various roles or the types of modeling tests you’ll be required to perform as part of the interview process. You can browse this and other case studies in the A.CRE Library of Real Estate Case Studies.

Note from Spencer and Michael: This is another post in a growing series that we call ‘International CRE’. Written by CRE professionals based outside of the United States, this series is a collection of deep dives into various CRE topics relevant to real estate professionals all over the world. One of the reasons we love the International CRE series is that things are not done the same in one country to the next, and this series highlights those differing perspectives.

This particular post is written by our friend Padmaa Iyer. Padmaa is an India-based Real Estate Fundraising Strategist and Chartered Accountant. She is also a long-time A.CRE reader and graduate of our Accelerator Program. A huge thank you to Padmaa for sharing her knowledge with the A.CRE community!

Case Study Context

About the Area

Pinkstones has shortlisted quite a large chunk of land this time–about 40 acres in Kasara–for their next dream development: ‘Shining Sheds Industrial Complex,’ a grade A (i.e. Class A) industrial warehouse.

The land parcels of warehousing clusters in the metropolitan are overly saturated and simply unbuyable. On the other hand, tier 2 & tier 3 cities are becoming more attractive for e-commerce operations, which continue to make deeper roots all across the country. Improved road infrastructure has supported this trend. Kasara’s location, near tier 2 Nashik city and surrounding regions, offers an affordable option for big industrial warehouses that can be an essential link in the supply chain of several industries.

Pinkstones aims to achieve two goals with this one initiative: build a lucrative income generating real estate asset and generate additon green revenue through a solar plant on the rooftop. They wish to reach at least 70% energy independence soon, with the potential of energy storage systems to be discussed in a subsequent case study.

About the financing

To finance this project, aside from investing their own money and that of the their potential passive investor partners, Pinkstones is looking at 2 more potential sources: partnering with landowners for land acquisition funding and securing partial funding for the solar plant from multinational corporation (MNC) or third-party logistics (3PL) tenants. These tenants would benefit from reduced electricity costs and priority in investment returns.

The financial model in this industrial case study will explore the 5-year life cycle of this venture, including a hypothetical sale at the end of year five, assessing the viability and impact of these strategies and assumptions.

Key considerations include:

• The profitability of a joint venture with landowners
• How long the project will take to complete and stabilize
• Whether it is worthwhile to finance from the power consumers
• The returns for Pinkstones as well as their passive/LP Investors

Foreign investors require the financial model to be presented in their respective currencies, necessitating a version that supports at least five foreign currencies: USD, SGD, Euro, AED, and AUD, in addition to INR.

Industrial Case Study Warehouse Key Assumptions

1. Land

Pinkstones has finalized 40-acres of a contiguous parcel of non-agricultural land near Kasara (Maharashtra State), adjacent to the Mumbai Nashik highway that is perfectly suitable for a large grade A industrial warehouse.

They are thinking of 2 options to acquire the land:

1. Outright Purchase

• Pay 10% of land price upfront as a token money in 2 equal instalments over the first 2 months.
• Pay balance 90% after the land due diligence is over.

2. Joint development with Landowners

This is a kind of Revenue Participation Financing from the landowners. Pinkstones would pay little upfront and have the comfort of paying it back as the project starts generating income.

• Pay 5% of the agreed price as the initial token money. Enter the balance value as a “Quasi-equity loan” from the landowners in the books against the total cost of land purchase price.
• Pay 12% share of the rental incomes (excluding solar business income) as a monthly interest service to the landowners.
• Pay 1.5 x of their Quasi-equity loan at the time of sale of business in full repayment of their capital and returns.

Additional costs include approximately 5% of the land price for stamp duty and registration, and about 1% as brokerage fees, payable over three months post-registration.

Land due diligence costs are included in the budget estimates, with market value between ₹1.8 to ₹2 crores per acre, aiming to close at ₹1.5 crores per acre.

2. Development Plan

• Permissible Ground Coverage Ratio is 55%.
• Land Area ~ 40 acres = 161,874 SM = 1,742,400 SF.
• Ground Coverage ~ 55% = 958,320 SF.

Of the total ground coverage, 98% will be dedicated to building 6 blocks of grade A warehouse and an admin building. 2% will be reserved to install Solar BESS in the near future (out of the scope of this industrial case study).

The warehouse blocks will alsos be developed in 2 Phases and the admin building will be built in a 3rd Phase.

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