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