Bangalore: Two Kotak group companies have invested Rs.170 crore to back realty firm Runwal Group’s recent acquisition of 150 acres in suburban Mumbai.
Kotak Mahindra Bank Ltd’s non-banking finance company provided Rs.100 crore of debt to Runwal Group a few days ago and a Rs.70 crore deal with Kotak Realty Fund was closed this week.
A number of Indian companies are looking to monetize land and other real estate assets such as apartments or office buildings to unlock value when developers are looking for such opportunities.
A subsidiary of Mumbai-based Runwal Group in January entered into an agreement with automobile firm Premier Ltd for 150 acres of the total 218 the maker of Premier Padmini cars owns in Dombivali. Runwal Group paid Rs.220 crore and will hand over a certain portion of the built-up area to the auto maker after development.
Kotak Realty Fund chief executive S. Sriniwasan confirmed the deal but declined to give more details.
A spokesperson for Kotak Mahindra Group declined to comment on the Runwal Group transaction.
“We are happy to partner with Kotak Realty Fund,” said Sandeep Runwal, director, Runwal Group.
Speaking on the project, Runwal said he plans to to build affordable homes over 10 years on the plot of land. “We are planning to building around 18,000-20,000 homes,” he said.
Runwal Group builds apartments, offices and shopping malls, primarily in Mumbai’s eastern and western suburbs. The 30-year-old company is run by chairman Sanjay Runwal and sons Sandeep and Subodh. Private-equity (PE) funds and non-banking finance companies (NBFCs) are providing support to developers in acquiring land through sale or joint development agreements, which will evidently give land deals a boost of sorts, say analysts.
Kotak Realty Fund, a division of Kotak Investment Advisors Ltd, has made multiple investments in Bangalore and the national capital region and is now looking at deals in Mumbai. In a recent transaction, the fund invested Rs.110 crore in Parsvnath Developers Ltd’s 130 acre township-cum-plot development project at Sohna on the outskirts of Delhi late last year.
Although there is interest from private investors in projects at the time of buying land despite the risk involved, they demand higher returns.
Increasingly, investors are claiming higher security from developers, in the form of collateral, to hedge investment risk. Investors typically demand collateral that is 2.5 to three times the investment or loan given, according to Ambar Maheshwari, managing director, corporate finance, at Jones Lang LaSalle, a property advisory.
“The second thing they look at is the first right to cash flows that come from of a specific project,” Maheshwari said.
Even when private investors and non-banking lenders invest at an early, land-acquisition stage, “they make sure that the land parcel has a clean title, so that the project can take off at the earliest”, said another analyst, who declined to be named.