Bangalore: The real estate fund of Anand Rathi Financial Services Ltd has bought stakes in two commercial projects for Rs 135 crore, its first investments since it raised the rental yield fund last year.
The fund has purchased a stake in an office project by Hubtown Ltd, earlier known as Ackruti City Ltd, in Andheri, in suburban Mumbai, for about Rs 70 crore, said Amit Goenka, national director of capital transactions at Knight Frank India, which advises the fund on transactions. The fund also invested Rs 65 crore in a project of Kumar Urban Development Ltd called Cerebrum B3 in Pune.
Though the Rs 220 crore Anand Rathi Rental Yield and Appreciation Portfolio was raised in 2010, the transactions have taken a while to close.
The transactions were completed at a 15-20% discount to current market value, analysts said.
“Both the deals have been done at attractive and reasonable valuations. Till March 2011, most real estate companies were holding on to their assets and were bullish about the market, but that changed after March,” said Goenka.
Goenka said high interest rates, coupled with sluggish sales and a liquidity crunch, have put pressure on most property developers, who are more willing to offload assets to raise money.
Private equity (PE) funds typically favour rental lease-generating assets. Compared with residential or development assets, those assets that are already generating rentals are a safer and more conservative bet. Also, rental yield funds have a defensive strategy in which they invest in assets that would provide regular returns to investors.
Traditionally, developers hold on to such assets for protecting their annuities, but because of the current liquidity crunch, they are ready to sell some of them.
Both Hubtown and Kumar Urban have raised money from alternate funding sources such as PE funds in recent months.
Earlier this year, Hubtown raised Rs 100 crore from PE fund Milestone Capital Advisors Ltd through a structured debt transaction with a fixed period for repayment.
Kumar Urban, excluding the current fund-raising exercise, has raised nearly Rs 300 crore this year, including Rs 30 crore from Reliance Portfolio Management Services and Rs 20 crore from Kotak Mahindra Bank Ltd’s non-banking financial company. The largest chunk of funds—about $55 million (Rs 270 crore)—came in from FMO, the entrepreneurial development bank of the Netherlands.
A Hubtown spokesman declined to comment, while Kumar Urban didn’t respond to a query.
Amit Rathi, managing director, Anand Rathi Financial Services, said the fund wasn’t in a hurry to deploy capital, and though opportunities in the office space market were in abundance, it was largely cherry-picking deals at the right price.
“The commercial office sector is close to the bottom, with no new supply. The overall real estate sector is probably at its worst, and things can only get better from here,” said Rathi.
Knight Frank’s Goenka said that with nearly half the fund’s capital deployed, the remaining transactions will be completed by the end of this year.
“We are looking at two transactions in Mumbai and another one in the south,” he said.
Anand Rathi is in the process of raising a second rental yield fund that could be between Rs 300 crore and Rs 500 crore in size.
Indiareit Fund Advisors Pvt. Ltd, founded by Ajay Piramal, is also raising its first rental yield fund.
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