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Our guest today is Rajesh Krishnan. He's the CEO of Brick Eagle Group uh located
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in uh Mumbai, India. Uh it's a developer of affordable affordable housing in
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India. Rajes, thank you so much for joining us at knowledge at Wharton. It's my pleasure. Thank you.
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Uh now understand your background is actually in banking. How did you get interested in affordable housing?
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Um actually brick eagle is more a financial services platform for affordable housing. Uh what we really do
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is connect capital with execution capability. So to that extent actually my my background in banking is extremely
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helpful. Um see while affordable housing is always known as a huge um depressing
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social need and an opportunity um the fact is there's a disconnect between capital and execution capability. And I
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happened to just stumble into it. I started investing in affordable housing in my personal capacity and that's when
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I learned that the risk adjusted returns in affordable housing is actually superior to many other asset classes out
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there. So at one stage I just decided to do it full-time. Okay. So we we'll come back to the to the
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returns but before we do that could you tell us a little bit about the housing market in India and spec specifically
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the need for uh affordable housing? Sure. How how big is the market? As you know, MKul, we have over a
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billion people in India. Everybody needs a roof over their head. Um there are various studies by McKenzie, Deutsche
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Bank and all written on this topic. Uh but I'm told the demand for affordable
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housing is over 5 million units every year in India. Today we are short of $20 million. But then it's a growing problem
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because of urbanization, right? So the annual housing demand is 5 million units. Um however the important point is
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supply is minuscule compared to that right so we're not even there at 10% of
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demand and as a result in a place like Mumbai as you know over 50% of people live in slums and substandard
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accommodation so it's a huge deal uh what is uh brick eagle's strategy to
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fulfill part of this demand and enter this market sure um see essentially we realize that
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the guys who want to do affordable able housing typically lack access to capital, right? And we started as a land
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banking company for affordable housing because we realized that what they need money for is usually to buy land, right?
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So we started investing in lands for affordable housing development. Soon we basically realized that the value chain
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for affordable housing is broken. So we decided to invest in developers and service providers in the affordable
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housing value chain. Right? And now we are looking to set up a housing finance company to also fund home buyers. Yep.
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So in a sense we are basically making investments across the value chain. So we are able to take it from start to
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finish. So I understand you recently celebrated your fourth anniversary. That's right.
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Uh can you tell us a little bit about some of the major milestones and what you've been able to accomplish so far?
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Uh sure. Um so as a for a 4-year-old company we today manage about,250 acres of lands which when fully developed will
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house about 88,000 families. Um we spread across um Maharashtra, Tamil Nadu and Gujarat through three states. Um
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today we have a team of 400 people uh doing this. Um last year we delivered 1,00 houses. As a group we've delivered
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about 4,000 houses so far but then we are slowly ramping it up. This year the target is to deliver 5,000 houses but I
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surely hope we start doing 10,000 50,000 houses uh you know within the next 5 years.
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Uh who would you say is your main competition Rajes and how does your approach differ from theirs?
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I don't look at anybody as competition, right? U I look at everybody out there
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as partners. You got developers, you got private equity shops, you got construction technology companies, you
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got various people out there, but what we find is everybody out there is missing some piece of the puzzle, right?
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So what we really want to do is basically plug those gaps and help those guys deliver scale, right? For instance,
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um recently we incubated a developer in in um in Puna, right? U they have access
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to funding. They are very good at construction, but they don't understand branding and distribution, right? So we
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put together the branding and distribution strategy for them, right? On the other side, we just recently made
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an investment in another developer in Gujarat. Uh they're actually very good
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de developer. They actually they won the award for the best affordable housing developer of the year and they've
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already delivered 3,000 houses. But they needed capital to scale up, right? So we
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told them, look, you run operations, let me take care of finance for you, right?
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So we actually look at ourselves as a plug-and-play service to essentially help others deliver scale.
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So what it seems to me from what you're saying, Rajes, is that what you're doing
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is leveraging the entire housing ecosystem. That's right. uh and and your goal, if I
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understand it correctly, and please correct me if I'm wrong, is to deliver houses uh that would cost the customer
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around $5 to $10,000 in that price range. Could you explain your approach of how does leveraging the housing
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industries ecosystem and the technology ecosystem allow you to develop houses at
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that kind of prices? Uh sure. I would like to make a small distinction here um between affordable
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housing and what we call social housing. Right? Affordable housing in my mind is
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a market-based solution uh for housing the middle and low-inccome segments. And there the trick really is to make small
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format homes livable, right? Because this is a market-based solution. It it is so the per square foot rate is a
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market rate. So the key value driver of affordability is size. So we put a lot of thought into making a 300 ft² home
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livable, right? So there basically the design the interiors and and all the amenities and stuff like that has a huge
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impact on the way the product is designed. But then the point that you're touching upon is what I would call
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social housing right because when we say India needs 20 million homes today all all the demand is is in the less than
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arguably $15,000 price point right $5 to $15,000. So there um essentially you need a
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radically different approach right because this segment per se is not so profitable. So you need to actually come
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up with some kind of product process or financial engineering to cater to this need, right? Like people like Habitat
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for Humanity are doing a wonderful job on the process engineering in terms of sourcing materials, labor at subsidized
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rates, right? Um but then the where we want to focus on is financial engineering. Um see today when we do
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affordable housing, we our investors seek 3x return in five years. That's about a 25% annualized return for them
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to be able to invest in affordable housing. But I'm saying if you have access to capital from impact investors
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who are happy with 5% annualized returns, we can use the benefit of low cost of capital to subsidize housing for
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the poor, right? And it turns out if you just get money at 5%, we can deliver houses at5 $10,000 in scale in the
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outskirts of Bombay. That's to me is like magic. So who are your investors today? are
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they primarily impact investors and uh what is your pitch to them as you uh aim for higher scale?
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Uh what sort of a pitch do you make to impact investors? See, so far we've been going to
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commercial investors. The pitch to them has been look um let's invest in lands
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for affordable housing development. So it's for you it's a fully secured
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investment that will target a 3x return while serving a pressing social need. Right? So that's the pitch we've been
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giving so far and we collected some 40 $45 million on this pitch right but now what we are very excited about is
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basically doing social housing for at the bottom of the pyramid right and for that we need to go to essentially
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endowments foundations impact investors right um who are who are basically happy
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to take a slightly higher risk for a slightly lower market return right we're
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not asking for charity uh we're saying we'll actually make 5% returns or 10%
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the need be Right. Um there we got our first check for a pilot project from a from a family office in India. It's
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actually the times of group in India uh who gave us 20 cr rupees that's about $3
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half million uh to run a pilot right. Um but then we think there is a lot of money available from impact investors
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globally especially from institutions pension funds in Europe right banks who have allocation for social impact and so
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we want to reach out to them this year. Well the flip side of any investment opportunity is always the risk.
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Uh so uh any red herring document outlines them. So what do you see as the primary risks of investing in affordable
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housing in India? Um look it's India so you can get hit from all directions so
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you just have to watch out. Um see but then it's it's mainly idiosyncratic
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risks if you ask me. Um so people often ask me hey you know what about cost escalation? What if u you know what if
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you're not able to get material on time, cement on time, construction technology?
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To me all of that is nice. You can have you know it can erode into your profits but you're not going to lose your shirt
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right those are all execution risks correct right but then most projects in India get stuck for two other reasons
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right not because of engineering process reasons it's mainly um it's fair to say
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majority of projects in India are stuck because they ran out of money right so financial closure is very important
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ensure that you're backing the right guy who has access to funding right um the
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second would be just idiosyncratic risk Right? So because the legal framework is
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fragile. So if you go to court, it can take 20 years to settle a lawsuit. Right? So you got to just stay away from
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shareholder disputes, local disputes, you know, and you know just you know keep it clean, right? No, I I
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understand. Considering that you are aiming at uh social housing, have you made any efforts to reach out to
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organizations like H uh Habitat for Humanity or even you know there are so social entrepreneurship foundations like
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Ashoka. Have you reached out to any of them to for support? Interesting you mentioned this. um
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Ashoka actually identified housing as a pressing social need about four or five years back and they've done phenomenal
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work and we met them and um so essentially what they were doing is that they was aggregating demands at the
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grassroot level and encouraging developers to supply right and turns out many more lot of developers were not
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interested in supplying at those price points right so we flipped the problem the other way around we said look this
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these are the areas where we can supply can you please aggregate demand for us here so we can ensure that it goes to
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the most deserving and beneficiaries. So, we're working with them and in fact
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we're just talking to them about partnering together to set up the social housing fund. Right? On the other hand,
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we're also speaking to Habitat for Humanity on how we can potentially partner because in essence our goals are
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the same. We both saying can we enable a million homes in the next 15 20 years and they realize that with their current
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approach they may not be able to hit that number in India right so we saying hey maybe if you know combined forces
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there's a good possibility we can make it happen right so so uh brick eagle has completed
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four years uh where do you see yourself in the next four years next four years um actually the next 10
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years is actually easier question to answer next 10 years right um see essentially we got a
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two-prong goal on one side uh we are saying hey can we deliver 1% of India's
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housing need right that turns out to be like a million units in the next 20 years right so which by the way is like
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a herculan task right so we set ourselves to achieve that goal right so that's our stated goal we want to
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deliver 1 million units in the next 15 20 years right on the other side also and done we are a market player right Um
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McKenzie says affordable housing is a hundred billion dollar market opportunity right and with as with every
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market we think the top 10 20% of the players are going to have the 80% share right so we we want one of our invest
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companies to be there in the top 10 right in the next 5 10 years right and right now as far as I can see the field
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is wide open there is no front runner right and so I think we have a decent shot at it
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great uh one last question Rajes that is uh based on your experience with affordable housing so far what can
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developers of other affordable housing projects in different parts of the world learn from break eagle.
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Ah um that's a difficult question. So see it's a it's a very local play right.
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Um one thing I would say is always have a local partner um for every place that you go to. uh interestingly for instance
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right home you know one of the biggest affordable housing developers in the world they came to India they spent five
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years they couldn't launch a single project right so so I mean while they of
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course know the game there are huge local barriers to entry um so in a way recognize the fact that you need to have
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local partners to execute and that in a way is also been the reason why a lot of
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modern developers corporate developers in India have not managed to scale up and
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because the decision- making is very centralized. So this is a very local game. You need to have a local guy out
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there taking the decisions on the fly. Yeah. Um so that would be uh one important learning I would say. Um but
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yeah, affordable housing is a global need. So there is enough to play. Well, good luck to you Rajes and thanks
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so much for joining us at knowledge at Wharton. Thank you so much. It's a pleasure.
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