PE investments give cash hit realty sector a new lease of life
Home-grown private equity funds seem to have opened their purse strings again for the realty sector, which is facing a cash crunch.
Dec 16, 2013
Source : The Financial Express


MUMBAI: Home-grown private equity funds seem to have opened their purse strings again for the realty sector, which is facing a cash crunch.

ASK Group is looking at investing R800-1,000 crore in residential projects over the next one year in Mumbai, Delhi and NCR, Bangalore, Chennai and Pune, while Ajay Piramal-owned Piramal Group's private equity arm Indiareit is ready to commit additional funds from its redevelopment fund.

ASK, a diversified financial services group, has two funds called ASK Real Estate Special Opportunities Portfolio-1 and ASK Real Estate Special Opportunities Fund.

While the company has committed 100% of the funds raised in Portfolio (R326 crore), a major part of these fresh investments will come in from the second fund of R1,000 crore, Amit Bhagat, CEO and MD, ASK Property Investment Advisors told FE.

ASK has already made five investments from its second fund raised in 2011-2012.

The latest investment was of R147 crore made in a residential project of ATS Group in Gurgaon in July. “The new investments will also be in the top five realty markets of Mumbai, Delhi & NCR, Bangalore, Chennai and Pune. We are not looking at Hyderabad at the moment as there is some more clarity required in the political landscape of the city,” said Bhagat.

ASK is also in the process of raising $200 million through an offshore fund as well.

Private equity investments activity is picking up in realty projects.

The investments into real estate by private equity funds surged to $1,885 million (R11,687 crore) in January-September against $1,235 million (R7,657 crore) in the first three quarters of last year, data sourced earlier by FE from VCCedge showed.

VCCedge is a data service by VCCircle.

Indiareit has invested R450 crore so far and is committing additional funds from its Mumbai Redevelopment Fund (MRF) in the coming months, said Khushru Jijina, MD, Indiareit.

From MRF Rs 100 crore has been invested with Omkar's Crescent Bay project coming up in central Mumbai.

From its Fund IV, IndiaReit has invested R100 crore with Marvel for projects in Pune, Bangalore and Mumbai, while from Fund V, R100 crore has been

invested with Ashiana Homes in NCR.

"In addition, we have committed R150 crore to a Mumbai-based developer on behalf of MRF and Fund IV. Our investment committee has also approved another transaction for MRF, which will result in over 60% of the fund being committed, and are taking two further deals to the committee for Fund V, which would translate into the fund being over 25% committed as a result," said Jijina.

The fund is targetting gross IRRs (internal rate of return) in excess of 24% from Fund V.

"We are comfortable in underwriting to such levels of return in the pipeline that is building out for the fund," he added.

As for ASK, Bhagat said there are still projects in the market where above 25% returns have been given to investors.

“Despite the current market conditions, most listed real estate firms have Ebitda margins higher than 25%. So, as equity partners, we are asking for returns that we see are being made by the developers on projects,” he said.

“Today, liquidity is a major challenge for developers with banks squeezing funds to the sector. But this is throwing up many opportunities for private equity funds, and almost 80% of the funds being committed are coming into the southern and western markets of India,” said VS Sridhar, director (Chennai operations), DTZ, a global real estate consultancy firm.

According to Bhagat, developers are facing tough times because issues of high debt, interest liability, and slow sales and absorption in some of their projects is affecting margins of other well-moving projects.

The consolidated net debt of eight debt-ladden real estate companies still remains high at R36,977 crore at the end of the September quarter.

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