A legacy of his own

Jeevan Gnanam, a third generation scion of the construction materials empire St. Anthony’s Group, is determined to make his own mark. Will tech industry-focused real estate venture Orion City help him do that?

Amid the hustle and bustle of the morning rush hour in Demategoda, a scene that didn’t exist a decade ago unfolds quickly. Grouped at either side of the pavement is a cluster of 20-something men and women with backpacks strapped and in jeans and hackathon T-shirts printed with the obscure syntax of their favorite programming languages. On their way to work, these silicon valley-esque foot soldiers are trudging towards Sri Lankan IT park Orion City.

Its founder, Jeevan Gnanam, is impatient. Things aren’t happening fast enough for him. “There are still quite a lot of floors that need to come up,” says Orion City’s chief executive and Gnanam family third generation scion, as he scans the active construction site of the new Orion City tower. With five of the 22 floors completed and another extended building yet to start construction Gnanam’s impatience at the pace of progress of the $70 million investment is visible when he tours the site. Once completed, the three buildings are expected to add a million square feet to the existing 600,000 square feet of the current Orion City campus.

Ninety five percent of the park’s rentable space is leased to leading tech firms attracted there by the availability of large open floor spaces, supporting infrastructure and a buzzing atmosphere. With Orion City, Gnanam has capitalised on the unavailability of large, customisable office space elsewhere. Some of the largest tech firms in Sri Lanka like NASDAQ-listed Virtusa, education sector specialist Pearson and BPO provider WNS occupy the space here, which currently accommodates a 6,000 workforce.

“If and when an IT delegation from overseas wants to figure out whether Sri Lanka has the potential to scale, they come here”” says Gnanam.

Since the completion of Colombo’s largest office complex, the 40-floor twin tower World Trade Centre, in 1996, few commercial buildings have been added to the skyline, resulting in a bottleneck for technology and business process outsourcing firms that have flourished here over the last two decades. Their demands were unique. Large, open plan spaces with good internet connectivity and an atmosphere that engages and motivates their young teams.

Orion Developments, the firm managing the Orion City complex, is a unit of privately-held South Asian Investments, a holding firm for businesses controlled by the Gnanam family, which includes Tokyo Cement, Rhino Roofing and Anton.

The company has been reeking in financial success in the recent years, with the expected boom in the IT industry. According to Gnanam, Orion City’s annual lease rentals top a billion rupees. Rentals per square foot are at around Rs180, he says, which is about half the price of those at Colombo’s best commercial buildings. Rental yields at 12% are also significantly higher than the industry average of 5%. However, Orion City isn’t being positioned as a lower cost alternative, but one that was built to fit the needs of the fast growing IT and BPO sectors.

High rental yields and steady cash flows from Orion City are reinvested in the new high-rise office complex fronting Baseline Road. He affirms that the new project is not overleveraged, and is part bank and part private equity funded at a 60:40 ratio.

Gnanam’s modus operandi is ‘If you build it, they will come.’ Kandy is where he looks to next. Under a long-term lease agreement with the government, the company has received a six-acre land in Pallekele to construct an office space of 100,000-200,000 square feet, which would accommodate around 1,000 people. When the country reaches the upper-middle income status, working in the capital becomes a costly affair. This would lead companies to look for cheaper alternatives, which makes the hill country the best option, he reasons. An IT park in Kandy may seem premature to some, but Gnanam believes that the second-largest city of the country will be the next big location for IT companies. “I see a lot of people from Kandy who come to Colombo for these IT jobs. We’ve seen similar things happening in India – where when tier 1 cities become expensive, tier 2 cities emerged,” he says.

He accepts the initial challenge of attracting companies here, but believes the inevitable shift of the commercial property landscape to another city will happen. “You might have to add a different flavor to it, but it’s going to happen.”

“If anyone saw the initial state of this land, they would have run a mile,” says Gnanam. Umbichchy Mills, the 16-acre land that Orion City is built on, was a ghost town, with vacated factories and abandoned warehouses. It was purchased by his grandfather, the eponymous founder of St.Anthony’s Group A.Y.S Gnanam, in the 1960s. The land was the nucleus for the group’s much-heralded textile business. “Cyntex was his baby,” Gnanam says, referring to his grandfather’s deep affection towards the group’s textile business. The company was an early pioneer of the textile industry, but by the late 1990s and with the Asian financial crisis, East Asian countries like China and Indonesia went on a dumping spree of textile produce on less-competitive economies. Unable to compete, local textile industry players began folding one after another. After almost four decades of business, Cyntex officially halted its operations in 2004.

Jeevan Gnanam was still in his mid-20s when he drew up his ambitious plan to build a tech park at Umbichchy’ Mills. The second generation Gnanams were skeptical at first. “I thought it was a moonshot. I never thought that they would agree,” he says. Until then, the group was merely continuing the legacy of the traditional businesses. A.Y.S Gnanam was deeply curious about his grandson’s intention of developing an IT park, even though he had little knowledge about the subject. “He was really interested in this. He would ask me, ‘Jeevan, what’s going on?’.” Gnanam reminisces an amusing account when his grandfather inquired whether Virtusa, the largest tenant of Orion City, would default on its payments, which could potentially derail the project, not knowing that the software company was a much larger business than any of the holdings of South Asian Investments.

In a way, Orion City has materialised retribution for Cyntex. “He loved people, and I’m pretty sure that if he saw the people working at Orion today, he will be pretty happy,” Gnanam says. “I don’t personally consider myself as a real estate developer,” he says. Other than Orion City, he also heads St. Anthony’s Industries Group, which manages the popular PVC brand Anton and St. Anthony’s Knowledge Services, the BPO firm he founded. Of all these hats, he wants to identify himself foremost as a technologist who is in the business of  developing real estate infrastructure for the IT industry. “I’m going to be a small part of settling that infrastructure piece. That is what excites me – the journey of creating an industry.”

Real estate development is a complex and creative operation. It requires prophetic vision and considerable risk taking on the part of the developer. If done right, it also has a proven penchant to churn future billionaires. Last year, the real estate sector contributed the most to the Forbes billionaire list than any other industry in the Asian region. Blessed with rising populations and thriving economies, cities like Mumbai, Jakarta, Hong Kong and Shanghai have been a panacea for some of the most wealthy real estate tycoons in the world such as China’s richest man Wang Jianlin and India’s largest real estate firm DLF. Colombo too shows potential qualities to become a sought-after real estate location; but right now, it is in dire need of more office space. According to real estate broker and research firm Jones Lang LaSalle (JLL) , the city’s ‘A’ grade offices are cramped with an occupancy rate close to 95%. Currently, there is a deficit of 1.4 million square feet. However, by 2022, the research firm predicts that demand for office space from the IT sector alone would increase to 15 million square feet. The dearth of space has also prompted significant pressure on appreciating rent and property prices. The rental price per square foot at the World Trade Center has doubled over 2011-2015.

Higher rental prices have already stimulated new construction. Hayleys’ twin towers alone will add three million square feet area of new office space. Many mega residential real estate properties like Shangri-La and Cinnamon Life by JKH have also tied with commercial development projects. This would also intensify competition among developers to attract tenants. Gnanam believes Orion’s unique identity as an IT park will make it stand out among other commercial buildings. The eco-system of a tech park does not surmount with a few erected buildings. The differentiator is a combination of both form and function.

The environment should provide an ambience of innovation and openness, and play the hallmarks of a thriving tech culture, he reasons. Gnanam firmly believes that Orion City is best introduced as a commercial real estate development catering only to IT and BPO companies. “We shouldn’t be everybody to everyone,” he says. “I don’t think that’s a strategy. That’s just trying to sell real estate. We want to choose the people and the economy that we work with.”

“God no. Definitely not Donald Trump,” he laughs. Jeevan Gnanam doesn’t have too many idols in real estate development and the world’s most famous real estate developer is certainly not one of them. The boom of the IT sector in the country is a vital part of the equation for Orion City’s future plans, and Gnanam is concerned about the upsurge of a protectionist environment in the west. “I’m not too worried about local policies, but global policy matters too.” The era of Trump and Brexit could derail the local IT BPO sector’s $5 billion target in export revenue by 2022, as these companies are heavily dependent on the west for services.

A few weeks back, India’s IT-BPO trade body NASSCOM deferred the growth guidance for the fiscal year 2018 by a quarter in the wake of uncertainties caused by the Trump administration.

Another concern is the dearth of tech talent in the country. Last year, Google India Managing Director Rajan Ananad made the case that Sri Lanka should open up its borders for foreign IT workers if the country is serious about becoming an IT hub, reasoning that Sri Lanka doesn’t have a demographic dividend such as India to scale its industries. Policies like the Economic and Technical Cooperation Agreeintroment (ETCA) with India in particular can help increase the tech talent supply to the country. However, the ETCA has polarised the local IT community, and Gnanam is cautious to take a position knowing the sensitivity of the issue. “I don’t think it’s the right time,” he says.

“If and when an IT delegation from overseas wants to figure out whether Sri Lanka has the potential to scale, they come here” says Gnanam.

“The first thing is to make sure we have all the structures in place for Sri Lankans to get those jobs. Once we do that, we should open up slowly. That is the way the world is moving.” However, Gnanam is optimistic about the forecasted tech talent to achieve the $5 billion target. “Our numbers have to increase from the current 80,000 to about 200,000, and those are very achievable,” he adds.

Iconic founders can be both a blessing and a curse. This is especially true in a family business. For the inheritors, it is a gut wrenching, existential experience when determining how much credit they really deserve for their accomplishments.

Gnanam acknowledges this feeling. “I don’t want to be portrayed as a privileged kid per say, but I consider myself very privileged.”

Gnanam’s biggest motivation is his grandfather. Being born into a poverty-stricken family in Tamil Nadu, educated only up to the fourth grade and immigrating to Sri Lanka at age 12, A.Y. S Gnanam not only laid the foundation for his business but established its core operations at the highest echelons of the corporate arena. The overarching presence of his grandfather is still felt deeply within the family.

Jeevan Gnanam may not have had to face the same odds as his grandfather, but he too is insistent on challenging himself beyond the comforts of his privilege. His manifestation of Orion City is about creating an identity for himself. “When I go there today and see the new Orion building coming up, it gives me a sense of accomplishment,” he says. “The best way to give back to the family and my grandfather is to create something new and add wealth to the entire family business.”