Mumbai: Kotak Realty Fund, an $800 million (Rs3,672 crore) real estate private equity (PE) fund from Kotak Mahindra Group, will invest Rs270 crore to acquire stakes in a Mumbai-based realty firm and a slum rehabilitation project and a Bangalore-based developer, chief executive S. Sriniwasan said.
The fund will spend Rs100 crore to acquire a 60% stake in Star Light Developers Pvt. Ltd and another Rs100 crore for 50% of the slum rehabilitation project undertaken by Ackruti City Ltd near Mumbai’s international airport, Sriniwasan said. It will spend Rs70 crore to purchase a 60% stake in Bangalore-based Lalith Gangadhar Constructions Pvt. Ltd.
The PE fund had in 2007 bought an 11% stake, then worth Rs145 crore, in Sunteck Realty Ltd, the parent company of Star Light, which is developing a residential complex in Mumbai’s Bandra neighbourhood that’s being sold at Rs35,000 per sq. ft. Residential space sells for Rs30,000-35,000 per sq. ft in the area.
New assets: Kotak Realty Fund chief executive S. Sriniwasan. Abhijit Bhatlekar / Mint
Star Light Developers has been stuck with a 6,800 sq. ft property it bought from the Mumbai Metropolitan Region Development Authority, or MMRDA, the city’s infrastructure development agency. The company is yet to pay Rs180 crore it owes MMRDA, largely because property prices fell last year, causing lenders and investors to stay away from investing in real estate projects.
Kamal Khetan, chairman and managing director of Sunteck Realty, declined to comment on the matter.
“I would not comment till the transaction is completed,” Vimal Shah, managing director of Ackruti City, said on his firm’s proposed deal.
Kotak Realty has in the past acquired a 9.5% stake for Rs130 crore in Lemon Tree Hotels, which operates 11 hotels and is building nine more, an 11% stake in Pune-based Pride Hotels for Rs50 crore, and invested Rs250 crore in IVRCL Infrastructure and Project Ltd’s Rs2,000 crore, 500-acre township project in Sriperumbudur near Chennai.
PE investment in real estate dwindled in the past two years as economic growth slowed. Real estate funds that invested $8.6 billion through 100 transactions in 2007, invested $6.5 billion in 2008 in 85 transactions, according to data from Venture Intelligence, a firm that tracks such investments in the country.
In the first 11 months of 2009, real estate funds invested $867 million in 20 transactions, Arun Natarajan, CEO of Venture Intelligence, said.
“Investors are still keen to invest in real estate because no other sector offers the kind of return the real estate sector can possibly offer,” said Venu Gopal, associate director at Ernst and Young India Pvt. Ltd.
In the past, investors focused on large townships that required consolidating large plots and where getting government approvals was time-consuming, leading projects to overshoot deadlines and costs to escalate. Learning from past experience, these investors are now eyeing smaller and medium-size projects with clean land records, Gopal said.