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

HT Estates - - FRONT PAGE - Mad­hurima Nandy mad­hurima.n@htlive.com

BEN­GALURU: Realestate fund­sthat in­vest in res­i­den­tial projects are find­ing it longer and tougher to raise mon­eyas­in­vestors re­main scep­ti­cal about In­dia’s hous­ing sec­tor. De­ploy­ing money is equally chal­leng­ing, said fund man­agers, as home­salesre­main 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 lead­ingtodown­ward­pres­sureon lend­in­grates, makin­gitchal­leng­ing for home-grown pri­vate eq­uity funds. IPALFundMan­agers, which has a strate­gic part­ner­ship with Cen­trum Wealth Man­age­ment, has put its plan to launch a Mum­bai-fo­cused real es­tate fun­don­hold. In early 2016, IPAL raised its first fund, IPAL Res­i­den­tial Op­por­tu­ni­ties Fund-1, aRs250crorecor­puswith a co-in­vest op­tion, which has been fully de­ployed. “In 2018, we want to fo­cus on mak­ing ex­its fro­mourear­lier­in­vest­mentsand will com­ple­teone­exit. Fund-rais­ing is chal­leng­ing and it has to be a dif­fer­ent con­cept or a unique the­me­with­outwhichit’stoughto raise money for res­i­den­tial projects to­day,” said IPAL’s manag­ing di­rec­tor and CEO Ramesh Jo­gani.

First Ea­gle Cap­i­tal Ad­vi­sors Pvt. Ltd, which­start­edrais­ing 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 tran­che­of­cap­i­tal­fromin­vestors, af­ter which the fund starts de­ploy­ing it. Su­dar­shanBa­jo­ria, MD, First Ea­gle­said­fund-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 soon­butin­nor­mal­cir­cum­stances, it wouldn’thave­tak­enso much time. But in­vestor confi- dence­has­been­some­whateroded due­totheir­pastin­vest­ment­ex­pe­ri­ence though a re­cent uptick in sales is a pos­i­tive,” said Ba­jo­ria.

Amit Bha­gat, CEO and MD, ASKProp­er­tyIn­vest­men­tAd­vi­sors, said that large in­vestors are still look­ing at mainly in­comeyield­ing as­sets. “In­vestors want to com­mit­moneyto­fund­man­agers 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 ayear­after alarge for­eign in­vestor com­mit­ted to in­vest $250 mil­lion in Arthveda Fund Man­age­ment Pvt. Ltd’s af­ford­able hous­ing Fund, the com­mit­ment has lapsed­with­the­lat­ter­not­draw­ing down the money. Bikram Sen, chief ex­ec­u­tive of­fi­cer of Arth- vedaFundMan­age­ment­saidthe fir­mis­now­fo­cuse­donex­itin­gand re­turn­ing cap­i­tal (fromits pre­vi­ous in­vest­ments) fast. “De­ploy­men­tremain­sachal­lengeth­ough there is tremen­dous de­mand for cap­i­tal. There are op­por­tu­ni­ties to de­ploy in distressed projects but de­vel­op­ers need to be re­al­is­tic. Fund­sneed­to­take­more­con­trol of the way in­ven­tory should bepriceda­mon­gotherthings,” he said. The key is to launch funds whichared­if­fer­ent fromtheothers and con­vince in­vestors.

Brick Ea­gle Cap­i­tal Ad­vi­sory Llp, afi­nan­cial ser­vices plat­form that funds and ad­vises low-cost hous­ing de­vel­op­ers, is rais­ing a Rs500crore­fund­for­bud­get­h­ous­ing projects with Rs10-30 lakh homes. Kirti Tim­managoudar, 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”. “Theend-prod­uct is low-cost homes and the only way we can re­turn money is by the sale of homes,” she said.

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