Bangalore: IIFL Alternate Asset Advisors Ltd, a part of the India Infoline Group, has made the first investment from its first private equity (PE) fund, putting money in a central Mumbai slum redevelopment project.
The transaction marks the entry of IIFL, which also has a non-banking financial company (NBFC) that has exposure to real estate, into the private equity funding space.
The PE fund, IIFL Real Estate Fund (Domestic Series I), has committed Rs 80 crore in a housing society-cum-slum-redevelopment project in Mumbai’s Sion Koliwada area that will generate about 1.2 million sq. ft of saleable space and will be developed by Sheth Creators, said chief executive Balaji Raghavan.
Having raised Rs 511 crore in November-January, the fund plans to raise an additional Rs 100 crore in the coming months.
“The project location is in an established residential area with not much quality supply, yet there is robust demand,” said Raghavan. “Fund-raising was difficult, but we have set ourselves a realistic target.”
The project will have two 50-storey residential towers and 2, 3 and 4 bedroom apartments that would be sold at around Rs 20,000-21,000 a sq. ft.
Sheth Creators was recently formed by brothers Vallabh and Jitendra Sheth, after they amicably separated from sibling Ashwin. The three of them continue to hold and manage assets under the earlier firm, Sheth Developers, even as the Sheth Creators duo scout for acquisitions to build a new portfolio.
Vallabh Sheth didn’t respond to Mint’s queries on Wednesday.
While Raghavan didn’t give out details of the investment structure in the IIFL-Sheth transaction, analysts said the PE fund will look at more structured deals with a debt and equity component, rather than pure equity.
PE funds that have so far stayed away from more complicated redevelopment projects, common in Mumbai, are now coming in to invest, said real estate analysts. Last year, another Mumbai developer Omkar Realtors and Developers Pvt. Ltd raised Rs 450 crore from Indiareit Fund Advisors Pvt. Ltd and Red Fort Capital Advisors Pvt. Ltd. In April, ASK Property Investment Advisors Pvt. Ltd invested Rs 100 crore in Godrej Properties Ltd’s first redevelopment project in Mumbai.
Kaustuv Roy, executive director of India at property advisory Cushman and Wakefield, said slums occupy some of the most expensive locations in the city and their potential appreciation is very high.
“Though not all funds have the kind of risk appetite required in redevelopment projects, if the initial approvals and clearances are done, then it’s a more secure bet for a fund,” said Roy.
With high demand for capital among developers in the real estate sector, all kinds of funding find favour, including PE capital, NBFC and bank lending. PE funds have invested $360.24 million in the real estate sector across 17 transactions so far this year, according to researcher VCC Edge. In 2011, $1.348 billion of capital was invested in 38 deals.
The IIFL PE fund will continue to explore deals in major property markets in and outside Mumbai such as Bangalore, Pune and Chennai.