REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) have been gaining popularity in the Indian market as a means of investment in the real estate and infrastructure sectors. These trusts offer investors an opportunity to invest in a diversified portfolio of real estate and infrastructure assets, without the hassle of directly owning and managing them. In order to ensure the smooth functioning and success of these trusts, SEBI (Securities and Exchange Board of India) has laid down certain guidelines and regulations, one of which is the condition that the project manager of the REIT/InvIT must be the sponsor and continue to act in such capacity for a minimum period of three years from the date of trading approval granted for the units.
This condition has been put in place to safeguard the interests of the investors and ensure the long-term sustainability of these trusts. Let us understand the significance of this condition and how it benefits the investors.
Firstly, having the project manager as the sponsor of the REIT/InvIT ensures alignment of interests between the sponsor and the investors. This means that the sponsor, who is responsible for managing the assets of the trust, has a vested interest in ensuring the success and profitability of the trust. This, in turn, benefits the investors as the sponsor will work towards maximizing the returns on their investment.
Moreover, having the project manager as the sponsor also ensures continuity and stability in the management of the trust. Real estate and infrastructure projects are long-term investments and require a consistent and dedicated approach towards management. With the project manager acting as the sponsor for a minimum period of three years, investors can be assured of a stable and experienced management team, which will work towards achieving the objectives of the trust.
Another advantage of this condition is that it provides a level of accountability for the project manager. As the sponsor, the project manager is responsible for the performance of the trust and is answerable to the investors. This ensures that the project manager will act in the best interests of the trust and its investors, as any negligence or mismanagement could lead to repercussions for the project manager.
Furthermore, this condition also serves as a safeguard against any potential conflicts of interest. In some cases, the project manager may also be the developer of the assets held by the trust. In such a scenario, having the project manager as the sponsor ensures that the interests of the trust and its investors are not compromised for the benefit of the developer. This helps in maintaining transparency and fairness in the functioning of the trust.
In addition to these benefits, having the project manager as the sponsor also brings in a sense of expertise and knowledge to the trust. The project manager, being intimately involved in the management of the assets, has a deep understanding of the real estate and infrastructure market, which can prove to be valuable for the investors. This also helps in mitigating any potential risks associated with the assets held by the trust.
In conclusion, the condition that the project manager of the REIT/InvIT must be the sponsor and continue to act in such capacity for a minimum period of three years is a crucial aspect of the regulatory framework for these trusts. It not only ensures the alignment of interests between the sponsor and the investors but also provides stability, accountability, and expertise to the management of the trust. This condition, along with other regulations put in place by SEBI, has helped in boosting the confidence of investors in these trusts and has contributed to their growing popularity in the Indian market. As the real estate and infrastructure sectors continue to grow, REITs and InvITs are expected to play a significant role in providing investors with a lucrative investment option, and the condition of having the project manager as the sponsor will continue to play a vital role in their success.
