Mumbai: Indian Property Advisors Pvt. Ltd (IPAL), a private equity (PE) fund, is planning to raise a Rs. 300 crore domestic fund and a $250-300 million ( Rs. 1,500-1,800 crore) offshore fund.
“I am planning to raise the two funds by the second quarter of next year. Before that, I will invest my own money in four-five projects,” IPAL managing partner Ramesh Jogani said in an interview last week.
To begin with, Jogani is investing in the slum rehabilitation and society redevelopment space in Mumbai.
IPAL has committed Rs.50 crore to an ongoing special purpose vehicle (SPV) with the Mumbai-based Neumec Group, a property developer, to redevelop projects in Vile Parle, a suburb of Mumbai.
Rajesh Jain, managing director of Neumec Group, confirmed the deal.
At a time when most PE funds are doing structured investment deals in the form of debt finance, where equity exposure is minimal and exits are in a timely manner, IPAL is looking at so-called “plain vanilla”, or basic, equity investments.
“Developers now are more willing to accept equity money as it helps them concentrate on completing the project rather than servicing the debt. And, of course, the returns would be more for the equity investor for taking that risk,” said Jogani.
The move marks a comeback to PE real estate funding for Jogani, who, until November 2012, was managing director and chief executive officer at one of India’s largest domestic real estate funds—Indiareit Fund Advisors.
At Indiareit, Jogani had raised and managed domestic and offshore funds of around Rs.3,000 crore since 2005.
Real estate experts, however, do not share Jogani’s optimism since the move comes at a time when real estate-focused funds are finding it hard to raise money.
“Investors are worried about the rupee depreciation and the delays in project completion. It will be even tougher for newer funds as they don’t have an exit track record,” said a senior fund manager with a domestic fund house, which is also raising offshore money. He did not want to be named.
The total value of investments in the residential property segment has dropped 48% to $156 million in the first half of 2013 over last year, according to a 30 July report by consultancy firm Cushman and Wakefield on PE investments in real estate.
According to Preqin, a research and consultancy firm, there are 22 funds focused on real estate that are looking to invest solely in India, and are collectively seeking in excess of $4.2 billion with an average fund size of nearly $212 million. But no fund has managed to close so far.
Fund managers say investors are jittery about the sharp fluctuations in the domestic currency, and the general slowdown in the real estate market.
Anshuman Magazine, chairman and managing director of property consultant CBRE South Asia Pvt. Ltd, said, “Mumbai is likely to witness subdued demand in the residential segment in the second half of 2013. RBI’s (Reserve Bank of India’s) recent decision to disallow banks from providing loans for under-construction projects through innovative schemes will adversely affect the city’s residential transaction activity.”
But, according to Jogani, a subdued market gives PE investors a good bargain.
“Developers are more realistic about their expectations and are ready to give an IRR (internal rate of return) of 22-25%, compared with the previous rate of 18-20%.” said Jogani. “IPAL is looking to invest in small redevelopment projects with a turnaround of three years and we will only fund for the growth capital.”
“The art of deal making has to be such that it benefits both the developers as well as the PE investors. With developers being open to negotiation, there is a good opportunity for private equity,” said property expert Gaurav Pandey, senior vice-president and head-research and consulting at property research firm PropEquity.