New Delhi, May 14 -- Strata, a fractional real estate ownership firm backed by Kotak Alternates and Elevation Capital, has surrendered its Small and Medium Real Estate Investment Trust (SM REIT) license amid a reported dispute with a developer partner.
The Securities and Exchange Board of India (SEBI) has issued a notice to Strata's SM REIT investors, asking them to exercise caution when dealing with the company.
Strata had applied for the SM REIT license in May last year and received approval from SEBI in January this year. However, the company hasn't yet launched any public SM REIT scheme.
"In light of the ongoing matter, we have voluntarily surrendered our SM REIT license, without admitting or denying any wrongdoing, as a measure of abundant caution. Upon the conclusion of the current litigations, we intend to apply for a fresh license at a future date. This matter does not affect the existing investments with Everstrat (Strata's primary fractional ownership platform)," Strata said in a statement.
While the timeline of the dispute is unclear, Strata also rebranded its primary fractional ownership platform to Everstrat in January this year. Previously, both its fractional ownership investment arm and the SM REIT business operated under the Strata brand. "This was done to keep the identity of the SEBI-regulated business distinct from the non-regulated one (as required by SEBI)," the company told VCCircle in response to a query.
The surrender comes amid reports of a dispute between Strata and Avigna Space, a developer with which it partnered in 2020 to build two Grade-A warehousing assets--Strata Avigna I and II--in Hosur, Tamil Nadu. The two firms raised about Rs 140 crore ($16.4 million) from investors for the project.
The controversy deepened when Strata's CEO Sudarshan Lodha was accused by Avigna Space of impersonating a SEBI official to gain sensitive information. A case was subsequently filed against Lodha.
In January, Strata had announced plans to transfer eligible assets to the SM REIT platform and aimed to grow its total assets under management (AUM) to about Rs 2,000 crore by the end of this fiscal year.
Strata--backed by Kotak Investment, Gruhas Proptech, Sabre Investments, Elevation Capital, Mayfield, and PropStack--manages assets worth Rs 1,800 crore, with about 100,000 members and 3,000 investors. Its portfolio spans 4 million square feet across Mumbai, Bengaluru, Pune, Hosur, Hyderabad, Chennai, among other cities.
The license surrender is likely to raise concerns among investors about the SM REIT market, particularly within the fractional ownership segment. Interest in SM REITs has grown since SEBI's regulation in March last year that reduced the minimum investment amount to Rs 10 lakh from Rs 25 lakh earlier.
Other notable players in this space include PropertyShare, hBits, and Rudrabhishesk Enterprises Ltd. Last week, PropertyShare filed draft papers with SEBI for its second SM REIT public offering, involving about 4 lakh square feet of Grade-A office space in Mumbai.
Published by HT Digital Content Services with permission from VC Circle.