MUMBAI: Khusru Jijina had to hit the ground running when around this time last year, Ajay Piramal cherry picked the old group loyalist to stabilise the operations at Indiareit Fund Advisors - the real estate venture capital fund of the diversified Piramal Enterprises that manages over a billion dollars of assets across a motley of eight domestic, offshore funds and third-party mandates.
There was speculation that the investment platform - one of the largest in the country was up for sale - following the 'key man' exits of the fund's former MD and its director of investments. But a year down the line, as Indiareit's MD, Jijina can claim to have delivered most of his mandate after successfully delivering profitable exits to his investors, raise fresh funds and even deploy them in new projects in the backdrop of a slowing realty market. "We have managed exits and raised capital, both over Rs 1,000 crore in the past 12 months and have even invested over Rs 800 crore. We have been the only active PE fund managers to be able to do all the three simultaneously," says Jijina as he shared his blueprint for success and future plans from his mid-town Mumbai office that looks more like a peppy design studio than a stoic fund house.
Investing in real estate today when many blue blooded peers are still licking the wounds of past excesses is no more a walk in the park. With diminishing interests, many sponsors are tightening their screws on fund managers as the sector risk profile heightens. The delayed construction activities have also ensured only a few bankable projects, resulting in a sharp drop of around 46% in new PE investments in the first half of 2013 as per the latest report by property consultants Cushman and Wakefield, compared to last year.
For Piramal and Jijina therefore, regaining the trust of his investors was the first priority. Being one of the founding members of the Indiareit platform in 2005 and the former boss of the group's real estate development arm was beneficial but clearly not enough to soothe frayed nerves. Piramal's increased personal commitment - an average of 7.5% to 10% across funds compared to 2-5% industry standard - was a timely tool to reaffirm sponsor support.
"We have a fiduciary responsibility of being the trustee of someone else's wealth. So we reached out to our investors to reiterate our commitment in the transitory phase," recalls Jijina. But more importantly, he had to recalibrate the strategy by "pausing on fund raising to prioritise exits from vintage investments".
Today that commitment has been met with successful exits across the platforms through buybacks by existing developers, trade sales or even via joint development agreements. The churn includes a villa township in Pune; a transfer of development rights in Mumbai and also large land parcels in NCR, mostly generating an average return of "mid-to-high teens".
Peers acknowledge the track record even though some are still circumspect about the degree of success. "Indiareit's leadership team has a great combination of industry knowledge, financial expertise and administrative prowess. They've managed decent exits at a time when exits themselves are difficult. But not all their exits has generated the desired return for investors," feels KG Krishnamurthy, MD & CEO, HDFC Property Ventures.
"They have diversified their risks well by moving into various geographies," says Pranay Vakil, chairman of Praron Consultancy, and adds, "But raising over Rs 800-Rs 1,000 crore in an environment that is uncertain at both macro as well as fund specific level is quite an achievement."
The lion's share of new money has been for an Rs 660-crore new domestic fund as well as for a dedicated Rs 500-crore Mumbai's Redevelopment Fund that aims to back projects that rehabilitate slums in the metropolis and in the process free up large swathes of land to improve the supply pool. Being an early mover in a now crowded space gives the extra leverage to already deploy 62% of the fund and plans are already in place for a second, bigger avatar to be launched in Q1 of 2014. Even this local fund aims to touch Rs 1,000-crore mark. Parallely, a second offshore $250-million fund will also be floated, once the current $200-million corpus is exhausted.
"We met several global and local funds but Indiareit was the 1st to understand the redevelopment opportunity. They showed the required boldness. Apart from being financiers in two of our major Mumbai projects, they are today adding value by providing inputs on key business issues like product mix, marketing, pricing and execution," says Gaurav Gupta, Director, Omkar Realtors & Developers.
Jijina is confident of replicating the Mumbai's redevelopment template in other metros of New Delhi and Bangalore in the foreseeable future. But keep1ing in mind the prevailing market dynamics, there has been a shift in Jijina's investment thesis from pure equity exposures to structured debt that incorporates an IRR component as well as an equity kicker to facilitate further upside. But this has raised some eyebrows in the industry as many feel the lines are blurring between Indiareit and Piramal's NBFC arm that also offers debt support to the sector.