Bengaluru: Having deployed a significant portion of its `529-crore real estate fund in residential projects in Bengaluru, Pune and Chennai, LICHFL Asset Management Co. Ltd (LICHFL AMC) is planning to invest the balance in commercial space and warehouse projects, the fund’s chief executive said.
LICHFL AMC—the private equity arm of LIC Housing Finance Ltd—had raised its maiden real estate fund called LICHFL Urban Development Fund in 2013 with a focus on mid-income residential projects.
“There are many deal opportunities that are coming to us, both from IT (information technology)-backed office projects as well as from warehousing, fuelled by the growth of e-commerce today,” said A.K. Sharma, chief executive of the fund.
According to Sharma, investment opportunities have piled up as many projects are stuck and waiting for completion. In many cases, the developers have finished construction but don’t have money for infrastructure work on water treatment, waste disposal or approach roads.
“We are looking at such deals related to project infrastructure. For IT office park deals, we are looking at cities such as Bengaluru and Pune, where we could buy a single asset or even look at a joint development deal,” he said.
LICHFL AMC is also thinking of a second real estate fund, with a probably bigger corpus, said Sharma, without disclosing details.
The real estate sector has faced a slowdown in the last two years or so. While home sales are yet to pick up, private equity (PE) investors have actively engaged in funding commercial office projects. “The positive outlook for the Indian market this year includes an increasing demand for IT/back-office space, the emergence of new sectors such as e-commerce as well as the rising demand for SEZ (special economic zone) space,” said Anshuman Magazine, chairman and managing director at property advisory CBRE South Asia Pvt. Ltd. “Other silver linings for 2015 are the likely commencement of REIT (real estate investment trust)-led investments in India’s commercial real estate, new workplace strategies and rising rents in supply-deficient core markets.”
“Most PEs have a clear investment strategy, where they either look at office space projects that are typically longer in tenure and without much exit pressure, or they invest in residential projects which are more fragmented and there is construction risk involved,” said Shashank Jain, partner, transaction services at PricewaterhouseCoopers India.
“These are two different asset classes, and while the bigger funds look at the large office deals, there are many new fund managers who do smaller residential deals,” said Jain.