Financial resilience has been especially important in the wake of the COVID-19 pandemic and amidst capital markets shifts. Nexity & The Loft, a 3.3 million-square-foot greenfield mixed-use development in Hyderabad, India, had to weather multiple unforeseen shocks throughout the project timeline. Initial COVID-19 pandemic lockdowns delayed construction, and the start of the war in Ukraine led to commodity price volatility. Value engineering enabled by efficient design and project management helped to get the project back on track, and a “just-in-time and just-in-case” approach was taken for procurement by carefully monitoring pricing trends of key materials such as cement and steel. To make up for lost time and reduce reliance on labour, the project transitioned from the traditional in-situ construction method, where all work occurs on-site, to precast construction, involving off-site casting and on-site assembly of concrete components, and monolithic construction, which creates seamless, joint-free structures.Despite the Reserve Bank of India hiking interest rates by a total of 250 basis points during development, the project’s debt costs remained the same. Subsequently, the cost of debt was reduced by 160 basis points overall in two stages by proactively compressing spreads triggered by a reduction in project credit risk. Overall, the project demonstrated impressive financial performance, despite the macro headwinds. The project’s current gross asset value is $544 million, and the equity multiple is estimated to be 2.4 times. The project was 77% pre-letted and high-quality tenants like HSBC have been secured. Rents are 11.5-12% higher than the market rate, with escalations of 15% every three years over average lease terms of 9-10 years. The project has achieved a five-star European Covered Bond Council (ECBC) rating, India’s Energy Conservation Building Code, and is US Green Building Council (USGBC) LEED v4 pre-certified GOLD and International Well Building Institute (IWBI) pre-certified WELL GOLD.CASE STUDY 5 Nexity & The Loft Source: RMZ.conservative LTVs, debt service coverage ratios (DSCRs), debt yields, adjustments to escrow requirements, higher amortization requirements, more stringent documentation and reporting at origination, and throughout the life of the loan can help reduce risk of default and lower capital costs. Additionally, interest rate caps, swaps and other measures can be used to hedge interest rate risk. Continued investment in leveraging proprietary and public data and analytics to support responsible underwriting and investment by both lenders and borrowers can also help mitigate risk. For example, borrowers can actively communicate with tenants and plan for lease rollovers. Diversification is also important for both lenders and borrowers – for lenders, varying exposure to different loan types across the debt stack that limits overexposure to construction loans, asset types and sub-markets is increasingly important. Lenders should proceed deliberately when entering a market where they lack a track record and specific sub-market expertise. For borrowers, asset type and sub-market diversification at the portfolio level is important along with increasing the variety of income streams at the asset level and ensuring they have the operational expertise to maximize revenue. Reimagining Real Estate: A Framework for the Future 27

Reimagining Real Estate 2024