PE funds sign deals with big builders like Lotus Greens, Mahindra Lifespace for stable returns
Oct 10, 2013
Source : The Economic Times


BANGALORE|MUMBAI: Private equity firms with big appetites are increasingly tying up with reputed developers to build large asset portfolios and earn stable returns.

While the overall number of real estate-private equity transactions have fallen over the last one year, funds are focusing more on tying up with reputed builders to create large asset portfolios.

In recent deals, real estate firm Lotus Greens raised money from Redfort Capital while Mahindra LifespaceBSE -0.09 % Developers entered into a joint venture with a unit of Standard Chartered Bank to develop residential projects. Similarly, US private equity giant Blackstone formed a special purpose vehicle with Embassy Property Developers while sovereign wealth fund Qatar Investment Authorities agreed to back real estate firm RMZ to buy commercial assets.

Analysts say this trend could gather momentum. "There have been cases of more and more partnerships in residential and commercial assets at construction stage and WE anticipate that in the next few quarters, the momentum will pick up," said Shashank Jain, executive director, transaction services, at PwC. "Tying up with a particular builder helps fund houses avoid coordination and leasing activities."

PE funds sign deals with big builders like Lotus Greens, Mahindra Lifespace for stable returns

Delhi-based Lotus Greens this week secured 1,000-crore funding from Red Fort Capital for development of projects in the Delhi NCR region. Earlier this year, Qatar Investment Authority invested $300 million ( 1,800 crore) in Bangalore-based RMZ Corp to back it in buying IT parks worth 3,000 crore. Blackstone last year bought a 50% stake in an SPV comprising three commercial properties totaling 19 million sq ft. "There is need for funds with long-term view to invest in India," said Embassy Group's CMD Jitu Virwani.

However, slowdown in construction activity in the country has left funds with fewer projects to invest in. According to data from Venture Intelligence, the first nine months of 2013 saw 28 deals with total disclosed value of $1,115 million, down about 6% from a year ago. "There has been lesser private equity investment as the proportion is falling due to market dynamics and difficulties in exit. Majority of the funds are looking at building assets and are raising capital for 7-8 years, as the development cycle in longer in India," said Neeraj Bansal, head of real estate and construction at KPMG.

The largest investment in the third quarter of 2013 was Standard Chartered's arm entering into a joint venture with Mahindra Lifespaces. "The investment plan of Rs 1,000 crore is to develop FDI compliant 1.55 million sq ft residential projects across key cities of India," said

Anita Arjundas, MD and CEO of Mahindra Lifespace. "The obvious objective of such alliances for the developer is to bridge funds with attractive opportunities. Typically, global funds that have taken equity exposure in real estate projects have looked at projected returns upwards of 20% post tax at India level," said Brian Chinappi, head of Real Estate Principal Finance, Standard Chartered Bank.

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