Realty, PE Cos Tap Refinancing Option
Move helps realtors lower cost of funding, offer exits to PE firms
Sobia Khan & Kailash Babar
Bengaluru| Mumbai: In the backdrop of falling interest rate scenario, realty developers and private equity players are increasingly taking advantage of the refinancing route to lower their cost of funding and make an exit.
The trend is likely to continue as capital flows are likely to increase with newer financing channels entering the market, encouraged by policy changes such as the Real Estate Regulatory Act, which will improve transparency.
“The number of successful exits will increase over the next 18 months. While office cap rates will remain the same, the average ROI expectations will actually decrease in this period,” said Shobhit Agarwal, managing director, capital markets, JLL India.
Indian real estate developers, on an average, raise $1516 billion every year from domestic as well as global sources such as banks, housing finance companies, NBFCs and other institutions such as private equity funds via structured debt instruments, he said. “Going by the number of transactions handled by JLL, out of every 10 transactions, seven were refinancing,” said Agarwal.
The deals are keeping the pitch busy for both real estate developers and private equity players that are also keen on using the opportunity to invest in projects. The proposals for such deals from builders are on the rise.
According to JLL, office real estate has emerged as the top asset class for investment, with Office real estate has emerged as the top asset class for investment
Mid-level residential and IT/ITeS office round up the top 3 asset classes for 2017
Mumbai & MMR, Bengaluru and Pune are clearly the top 3 cities as investment destinations mid-level residential and IT/ ITeS office rounding up the top 3 asset classes for 2017. Mumbai & MMR, Bengaluru and Pune are clearly the top 3 cities as investment destinations.
“Significant amount of exits in the past 18 months have been through refinancing,” said Vikas Chimakurthy, senior executive director, Kotak Realty Fund.
While developers may be relieved with refinancing deals, they also have their own challenges as newer entrants will ensure their margin of safety. “While we have also been concluding some deals that involve refinancing, we have ensured that we are stepping in with at least 200% security cover in projects which have substantially completed construction and are in the right locations.
“Typically, this is last-mile financing closer to comple- Private equity real estate firms announced 24 exits during entire 2016 Of these, 22 transactions had an announced value of
up compared to across 16 transactions announced in 2015 tion of projects, which has achieved benchmark in terms of sales as well,” said Ambar Maheshwari, CEO Private Equity, Indiabulls Asset Management Company.
Private equity real estate firms announced 24 exits during entire 2016. Of these, 22 transactions had an announced value of $1.02 billion, up 13% compared to $905 million across 16 transactions announced in 2015. Total 13 of the exits were through buybacks followed by secondary sales involving sale of stake to another PE investor, which accounted for five exits, according to data from Venture Intelligence. While developers may be using the refinancing route to lower their funding costs, private equity firms that had invested in land acquisition at pre-approval stage may have to exit now because of the fund’s tenure. For new entrants, including non-banking finance companies and private equity players, the scenario is turning out to be an opportunity as it allows them to enter these projects now with a good revenue visibility.
Real estate developers, on an average, raise $15-16 b every year from domestic as well as global sources