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Business News/ Companies / PE firm Paracor Capital to invest $70 million in residential projects
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PE firm Paracor Capital to invest $70 million in residential projects

Paracor Capital will deploy the capital committed by offshore investors, in both early-stage and under-construction projects in tier I cities

PE investments in the real estate sector dropped 42% in the six months ended 30 June from a year earlier, as the supply of quality new projects dried up because of persistent slowdown in home sales. Photo: Ramesh Pathania/MintPremium
PE investments in the real estate sector dropped 42% in the six months ended 30 June from a year earlier, as the supply of quality new projects dried up because of persistent slowdown in home sales.
Photo: Ramesh Pathania/Mint

Bengaluru: Private equity (PE) firm Paracor Capital Advisors Pvt. Ltd plans to invest about $70 million across 6-7 residential projects, through structured debt deals, said a top executive.

The firm, through its fund Madison India Real Estate Fund, will deploy the capital committed by offshore investors, in both early-stage and under-construction projects in tier I cities.

Madison India Real Estate Fund had invested about $50 million in residential and hospitality projects between 2007 and 2013, across six transactions, and is currently in exit mode.

“From the new corpus, we are happy to do early stage transactions, where we buy land and give it out on a joint venture arrangement with a developer, but they have to be city-centric, smaller projects. We will obviously do structured debt deals where we fund construction of ongoing projects," said Anil Pathak, managing director and chief executive of Paracor Capital.

Pathak expects to deploy about $10 million in each project and earn about 17-20% internal rate of return (IRR) in dollar terms.

Paracor Capital typically invests growth capital of between $5 million and $10 million and takes equity stakes of between 26% and 49%.

Madison India Real Estate Fund exited its investment in Shriram Land Development India Ltd with 17% IRR in dollar terms. The fund had invested about $5 million of equity capital to buy 35 acres for a plotted development project in Bengaluru with Shriram Land.

With the Shriram Land exit, the fund has concluded four exits, Pathak said. The fund earned 59% IRR with its exit from hotel chain Sabari Inn Ltd, 17.5% from exiting a Chennai residential project of Arun Excello Homes Pvt. Ltd and 18.5% from selling its stake in Daman Hospitality Pvt. Ltd to Delta Corp. Ltd.

“The remaining two exits, in Pune and Chennai, are taking longer than expected due to lack of liquidity and the current market scenario. Deployment is also a challenge today and pricing of projects is a key issue. We will remain cautious in investing," said Pathak.

PE investments in the real estate sector dropped 42% in the six months ended 30 June from a year earlier, as the supply of quality new projects dried up because of persistent slowdown in home sales.

PE funds invested about $954 million in real estate projects from January to June this year, compared to $1.66 billion in the same period in 2015, according to data from investment tracker VCCEdge and Mint research.

“On-ground project activity hasn’t really taken off, which is why it is a challenge for investors to deploy capital because projects are delayed and risks are higher. If one is investing in a new project, he has to ensure that the developer’s earlier projects are not stuck. But with not many fresh launches, what is happening is that the same set of projects is getting financed and refinanced," said Shashank Jain, partner, transaction services, PricewaterhouseCoopers India.

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Published: 18 Jul 2016, 03:40 PM IST
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