BackIDFC partners SARE Homes, to raise $250 million fund
As part of the deal, SARE will manage and monitor projects in which IDFC will invest
Premium
IDFC Alternatives Ltd, the investment arm of IDFC Ltd, has entered into an asset management and development partnership with property firm SARE Homes, two people familiar with the plans said on condition of anonymity.
As part of the agreement, SARE Homes will manage and monitor the projects in which IDFC will invest; both parties may co-invest and develop certain projects on their own; and IDFC may also invest in certain existing projects of SARE.
“As an asset manager, SARE will monitor the projects the fund invests in and will get a management fee," said one of the people cited earlier.
Construction delays have been a key concern in the real estate slowdown and developers are struggling to complete and deliver projects to homebuyers. In such circumstances, fund managers such as IDFC want to ensure that their investments are secure.
IDFC Alternatives is also on the road to raise its second real estate fund, targeting about $250 million from offshore investors.
Last year, IDFC Alternatives raised its first realty-dedicated domestic private equity fund of ₹ 750 crore, a debt fund to invest in residential projects.
The domestic fund is currently in the last leg of deployment.
The new offshore fund will also invest in residential projects in the top few property markets.
Private equity (PE) firms plan to raise about $3 billion from overseas investors this fiscal year to create dedicated funds that invest in local real estate projects despite choppy markets and inadequate interest from limited partners (LPs) in the Indian real estate segment.
Housing Development Finance Corp. Ltd (HDFC) is planning two new offshore funds, a $500 million fund through HDFC Property Fund and an $850 million fund through another entity, among others.
LPs include public and corporate pension funds, insurance companies, wealthy individuals and university and other endowments that are the source of money for PE firms, which then establish funds to invest.
SARE Homes, part of London-based asset management firm Duet Group, already has a portfolio of large projects.
The Gurgaon-based developer is developing five large townships in Gurgaon, Chennai, Ghaziabad and Amritsar, plans to launch projects in Ghaziabad, Chennai, Panvel and Indore in the course of the year.
“SARE Homes has the execution bandwidth to develop on their own as well as manage other projects," said the second person. Typically, PE funds have in-house management teams that oversee projects they have invested in and monitor their pace of development, costs and other related issues.
“Theoretically an external asset manager sounds logical, but established developers may not entertain the supervision by another developer in their own projects. So we have to wait and see how this plays out," said a fund manager who didn’t want to be named.
Most LPs are looking at securing their position and are likely to be more comfortable when a fund is accompanied by a developer as an operating partner. Fund managers are looking at ways in which they can step in and salvage the situation or take control in a certain project, if such a situation arises, said property analysts.
“Most PE funds are at the mercy of a developer and if construction gets stalled in a project due to some reason, there’s not much the fund can do. If he has a developer partner, he cannot only make a case to his LPs to take operating control but also go ahead and complete it if needed," said Shashank Jain, transaction services partner with consulting firm PricewaterhouseCoopers India.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
