Every fractional platform has a polished deal page. Beneath the gloss, the fundamentals either stack up or they don't. Here's a repeatable way to find out.
1. Tenant and lease
Who is the tenant? Is it a Fortune 500 / listed entity / MNC captive / early-stage firm? What is the credit rating or equivalent? What is the remaining lease term, the lock-in period, and the escalation clause? Five-year lock-ins on top-tier tenants are the gold standard.
2. Location and micro-market
Is the building in a primary commercial corridor (Whitefield, BKC, HITEC City, Gurgaon Cyber City) or a secondary one? What is the vacancy rate in the micro-market? Where are cap rates trading for comparable assets? Location drives both rent defensibility and exit liquidity.
3. Asset quality and age
Grade-A means LEED/IGBC-certified, professionally managed, with institutional-grade mechanical and fire systems. Age matters — a 15-year-old building will need capex; make sure a capex reserve is budgeted.
4. Acquisition price vs replacement cost
Compare the per-sqft acquisition cost to recent comparable transactions and to the replacement cost. Buying 20% above replacement is a red flag; 10% below is very strong.
5. Yield and capital structure
Distribution yield should be net of all fees. If the SPV is partially debt-funded, understand the coverage ratio and interest-rate reset risk.
6. Exit plan
A credible exit is either (a) sale to an institution at a defined cap rate, (b) IPO / REIT roll-up, or (c) strategic secondary market. Platforms that wave hands at 'exit after five years' without specifics are planning to wing it.
7. Platform track record and fees
Has the platform successfully exited prior deals? What is the realised IRR on those exits versus projection? Are fees performance-aligned (hurdle + catch-up) or just straight management? A 2% management fee with no hurdle is expensive.
Red flags
- Tenant unnamed or described only as 'reputed MNC'.
- Aggressive escalation assumptions (>4% in a 3% market).
- Exit cap rate lower than entry cap rate without justification.
- Platform fees that compound across acquisition, management, and exit with no hurdle.
- Scheme document not available until after you sign the commitment letter.