Bangalore: Pragnya Advisors Pvt. Ltd, a private equity (PE) fund focused on real estate, has closed two transactions in Colombo and Rajahmundry, Andhra Pradesh, from its $100-million second fund.
In Rajahmundry, Pragnya has invested about $5 million (Rs 25 crore) in a 50-acre integrated township.
In Colombo, it has deployed an undisclosed sum in the residential portion of a premium mixed-use project.
The fund, which invests in foreign direct investment-compliant projects in India and Sri Lanka, is investing $30 million in three projects in Pune, Chennai and Hyderabad.
Pragnya is one of a few realty funds that cater to small capital requirements that larger funds don’t address.
With the Reserve Bank of India tightening norms for banks, large and mid-sized developers are relying on PE funds and non-banking financial firms for capital to buy land, fund construction or repay debt.
Pragnya is still raising money for its second fund.
Earlier this year, Pragnya contributed from this fund a small portion of a $5 million investment in a mixed-use project in Whitefield, a Bangalore suburb, for which it has formed a joint venture with developer Habitat Ventures Ltd.
Pragnya typically does small transactions to spread the risk.
“None of the big funds are playing in this space and, therefore, for smaller funds like ours, there is less competition,” said Subba Rao Dukkipati, managing partner, Pragnya.
Now is a great time to invest in realty projects because developers are more realistic about valuations as there is an urgency for capital, he said.
Larger funds prefer to invest?at least Rs 100 crore, depending on the project size.
Harvesp Mehta, director (real estate), Motilal Oswal Private Equity Advisors Pvt. Ltd, which, like Pragnya, caters to smaller requirements, said most large PE transactions in the real estate sector have a negligible portion of equity.
“We invest about Rs 25-50 crore in each transaction; but irrespective of the size of a deal, the transaction has to make sense,” said Mehta.
Real estate consultants say there is huge demand for capital among smaller developers in property markets outside Mumbai, Delhi and Bangalore.
“Besides the capital investment, we also needed an experienced, strategic partner because it’s a large project,” said Ram Bhoopal, director, Vision Heights Ltd, which has partnered with Pragnya in the Rajahmundry project. “It wasn’t very difficult to raise the money because the project was the key selling point in our case.”
Pragnya, besides functioning as an investor, is also a co-developer in the projects it funds.
Rajeev Bairathi, director, investment advisory, DTZ International Property Advisors, said small investments are of two kinds.
The first is when a fund functions as a co-investor and forms a joint development agreement with an existing developer or land owner.
The second is a cash flow discounting system in which money from the sales in a project accrue in an escrow account. The developer raises capital from a PE fund to buy another piece of land and the fund gets its returns from cash flows that come from the current project.