Realty funds face uphill task in rais­ing, de­ploy­ing cap­i­tal for projects

Hindustan Times (Chandigarh) - Estates - - FRONT PAGE - Mad­hurima Nandy mad­hurima.n@htlive.com

BEN­GALURU: Real es­tate funds that in­vest in res­i­den­tial projects are find­ing it longer and tougher to raise money as in­vestors re­main scep­ti­cal about In­dia’s hous­ing sec­tor.

De­ploy­ing money is equally chal­leng­ing, said fund man­agers, as home sales re­main tepid, re­turn ex­pec­ta­tions of in­vestors are high and un­cer­tainty looms over the sec­tor.

Five years into the slow­down, non-bank­ing fi­nan­cial com­pa­nies (NBFCs) are ag­gres­sively lend­ing to res­i­den­tial projects lead­ing to down­ward pres­sure on lend­ing rates, mak­ing it chal­leng­ing for home-grown pri­vate eq­uity funds.

IPAL Fund Man­agers, which has a strate­gic part­ner­ship with Cen­trum Wealth Man­age­ment, has put its plan to launch a Mum­bai- fo­cused real es­tate fund on hold.

In early 2016, IPAL raised its first fund, IPAL Res­i­den­tial Op­por­tu­ni­ties Fund-1, a Rs250 crore cor­pus with a co-in­vest op­tion, which has been fully de­ployed. “In 2018, we want to fo­cus on mak­ing ex­its from our ear­lier in­vest­ments and will com­plete one exit. Fund-rais­ing is chal­leng­ing and it has to be a dif­fer­ent con­cept or a unique theme with­out which it’s tough to raise money for res­i­den­tial projects to­day,” said IPAL’s manag­ing di­rec­tor and CEO Ramesh Jo­gani.

First Ea­gle Cap­i­tal Ad­vi­sors Pvt. Ltd, which started rais­ing its first res­i­den­tial-fo­cused fund of Rs500 crore a while back, aims to do a first close some­time soon.

A first close is rais­ing the first tran che of cap­i­tal from in­vestors, af­ter which the fund starts de­ploy­ing it Su­dar­shan Ba­jo­ria MD, First Ea­gle said fund-rais­ing has been tough given that many in­vestors, par­tic­u­larly high-net­worth in­di­vid­u­als, have burnt their fingers in real es­tate in the past.

“We are reach­ing our first close soon but in nor­mal cir­cum­stances, it wouldn’ t have taken so much time. But in­vestor con­fi­dence has been some­what eroded due to their past in­vest­ment ex­pe­ri­ence though a re­cent up tick in sales is a pos­i­tive,” said Ba­jo­ria.

Amit Bha­gat, CEO and MD, ASK Prop­erty In­vest­ment Ad­vi­sors, said that large in­vestors are still look­ing at mainly in­come-yield­ing as­sets.

“In­vestors want to com­mit money to fund man­agers who have dis­played track record of de­ploy­ing and re­turn­ing money and have a dif­fer­en­ti­ated strat­egy. First-time fund man­agers will fund it tougher to raise money in this chal­leng­ing en­vi­ron­ment,” Bha­gat said.

ASK is cur­rently rais­ing a Rs1,000 crore spe­cial sit­u­a­tions fund that will pro­vide flex­i­ble cap­i­tal, in the form of pre­ferred eq­uity, to de­vel­op­ers.

More than a year af­ter a large for­eign in­vestor com­mit­ted to in­vest $250 mil­lion in Arthveda Fund Man­age­ment Pvt. Ltd’s af­ford­able hous­ing Fund, the com­mit­ment has lapsed with the lat­ter not draw­ing down the money.

Bikram Sen, chief ex­ec­u­tive of­fi­cer of Arthveda Fund Man­age­ment said the firm is now fo­cused on ex­it­ing and re­turn­ing cap­i­tal (from its pre­vi­ous in­vest­ments) fast.

“De­ploy­ment re­mains a chal­lenge though there is tremen­dous de­mand for cap­i­tal. There are op­por­tu­ni­ties to de­ploy in distressed projects but de­vel­op­ers need to be re­al­is­tic. Funds need to take more con­trol of the way in­ven­tory should be priced among other things,” he said.

The key is to launch funds which are dif­fer­ent from the oth­ers and con­vince in­vestors.

Brick Ea­gle Cap­i­tal Ad­vi­sory Llp, a fi­nan­cial ser­vices plat­form that funds and ad­vises low-cost hous­ing de­vel­op­ers, is rais­ing a Rs500 crore fund for bud­get hous­ing projects with Rs 10-30 lakh homes.

K ir ti Tim man agoud ar, a part­ner at Brick Ea­gle said ide­ally, the dif­fer­en­ti­ated theme should work for the fund but one needs to tell in­vestors that “we are dif­fer­ent”. “The end-prod­uct is low­cost homes and the only way we can re­turn money is by the sale of homes ” she said

NBFCS ARE AG­GRES­SIVELY LEND­ING TO RES­I­DEN­TIAL PROJECTS LEAD­ING TO DOWN­WARD PRES­SURE ON LEND­ING RATES, MAK­ING IT CHAL­LENG­ING FOR DO­MES­TIC PRI­VATE EQ­UITY FUNDS

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