Bengaluru: ASK Property Investment Advisors, the private equity arm of financial services firm ASK Group, is raising a Rs2,000 crore special situations fund from domestic and foreign investors to invest in residential projects where sales have been tepid.
The ASK Real Estate Special Situations Fund, which falls under Category II AIF (alternative investment fund), will raise about Rs1,000 crore each from domestic and offshore investors and offer capital in the form of preferred equity to developers.
With the real estate sector in a slowdown, the fund will play a critical role in reinvigorating projects that have seen slow sales or do not have the financial bandwidth to complete construction on time without finance support. The new fund will provide additional working capital and refinance debt to ensure projects are completed on time.
In a departure from typical structured debt funds, ASK will offer preferred equity, where the capital will be securitised like debt but repayment will have the flexibility of equity -- payable when able and without the liability of quarterly payments.
This is also a strategic shift for ASK, which is one of the very few domestic private equity firms that have made pure equity investments in real estate projects.
“This separate pool of capital will be for projects where sales are slow, and we come in and refinance the developer’s debt and give him flexible money with no immediate urgency to repay. This ensures that the developer focuses on execution and as investors, we can focus on project control and risk management,” said Amit Bhagat, chief executive and managing director, ASK Property Advisors.
The fund will mainly invest in mid-segment residential projects in Mumbai, the National Capital Region (NCR), Pune, Chennai, Bengaluru and Hyderabad.
Bhagat said ASK is not taking any approval risks with this fund and will only look at projects that have been launched with full approvals.
“Our strategy remains the same in terms of partnering with a good developer for a project that is viable,” he said.
Apart from this fund, ASK has another Rs1,500 crore of pure equity dry powder to invest in the next three years.
Most fund managers are now trying to create separate pools of capital to cater to different kinds of developers and projects. From the pure equity funds of 2005-06, structured debt and mezzanine debt instruments took over in the last few years, with PE funds and non-banking financial companies (NBFC) demanding higher collateral and fixed repayments on a quarterly basis.
However, this put pressure on developers to service debt even as cash flows continued to remain tepid—this was not sustainable. Today, many fund managers and NBFCs have started offering more repayment flexibility to address the need of the hour.
“Taking the current scenario into account, many projects are going slow and need external financial support. It’s an opportunistic strategy for an investor, and if you get good projects with good partners, there are significant chances of a good upside. As fund managers, who have always done equity, this also broadens their scope of investments,” said Shashank Jain, partner, transaction services at PricewaterhouseCoopers India.
Jain said that fund managers with good operational teams can also play a larger role in such cases, and engage more closely with the developer partner and the concerned projects and their issues.
Fund-raising in real estate has also been active despite slow sales and with project cash flows continuing to be tepid, developers are actively trying to raise capital to either refinance existing loans or complete projects.
Earlier this month, IDFC Alternatives Ltd, the real estate investment arm of IDFC Ltd, said it has raised its third real estate fund of Rs760 crore from domestic investors. Indiabulls Alternative Investments Ltd is raising up to Rs1,000 crore from non-resident Indians, persons of Indian origin and other foreign investors, and IIFL AMC Ltd has raised a Rs750 crore debt fund. Eagle Capital Advisors Pvt. Ltd has launched Alpha Advantage Real Estate Fund, which will focus on equity investments.