26 March 2016 07:12:37 IST

Corporate-backed fund houses see signs of revival in realty sector

CHENNAI, TAMIL NADU, 24/12/2015: View of real estate development at Sholinganallur-ECR connecting road in Chennai. Photo: G. Krishnaswamy

Tie up funds to provide capital to developers

Corporate backed fund houses are betting big on the residential real estate category as the sector is showing slow but sure signs of recovery.

Companies and their investors are raising funds to provide equity-led capital to fund-starved developers. In the last two months alone, a host of big names have rounded up funds, signalling revived investor confidence.

The latest to join is Godrej Properties, an arm of Godrej Ltd. The company has raised $275 million (₹1,900 crore) for Godrej Residential Investment Program II (GRIP-II) with Dutch pension fund asset manager APG Asset Management NV as the lead investor.

Residential projects Besides, it has also created a separate real estate fund management business in India and Singapore — Godrej Fund Management (GFM) and capital has been raised through this route. The new pool of capital will be invested in residential projects. Pirojsha Godrej, MD and CEO, Godrej Properties, said, “The new GRIP II platform in partnership with APG will help us attract high quality long-term equity investors to partner with us in our development projects across India. This fits well with our strategy of deepening our presence across the country’s leading real estate markets while maintaining a capital light development strategy.”

Others like Kotak Realty Fund too closed a fresh commitment of $250 million (₹1,600 crore). The recent clarifications by the Government have also enabled corporates like Kotak to structure this as an Alternative Investment Fund. Vikas Chimakurthy, CIO, Kotak Realty Fund, said, “This new pool of capital will address the equity requirements of the sector. We anticipate that the correction in the residential market will reflect in land values over the next few quarters which will make the equity investment argument attractive.”

Similarly, Piramal Fund Management, an arm of Piramal Enterprises Ltd, is looking to ease the funding woes of developers by launching ‘Piramal Preferred Partner’, with a corpus of ₹15,000 crore in the first phase. Under the program, the company’s selected existing development partners are allowed to draw from a pre-sanctioned limit in order to pursue opportunistic acquisitions.

“The market has been consolidating in the last couple of months. Developers have been undertaking joint development and also sealing deals in real estate sector. Our effort will give a fillip to such deals for developers who can go ahead without worry,” Khushru Jijina, Managing Director, Piramal Fund Management, said.

Bulk purchase Jijina said the platform is capable of extending — right from early stage equity to senior secured debt / construction finance and even a structured bulk purchase of individual units. Indiabulls Real Estate Fund (IREF), the first scheme of Indiabulls AIF (Alternative Investment Fund), too said it has closed funds over ₹500 crore within a short span of 9 months since its launch. This too the company has invested in approved, under-construction residential projects with significant sales, primarily in geographies with proven market depth, high pent-up demand and in projects with low execution risks.

“While there are ample investment opportunities in the real estate, our calibrated investment strategy of choosing top developers and their quality ‘under-construction’ projects has worked,” Akshay Gupta, Group Executive Head & CEO, Indiabulls Asset Management Company Ltd.