Bangalore: Ajay Piramal-backed Indiareit Fund Advisors Pvt. Ltd has invested Rs 200 crore in a Mumbai luxury residential project being developed by Omkar Realtors and Developers Pvt. Ltd.
This is the first time Mumbai-based Omkar has raised money from a private equity (PE) fund. The company will use some of this capital for other project plans too, said Babulal Varma, managing director of Omkar.
Indiareit has made the investment from the Rs 930 crore Domestic Fund IV. Half of this corpus has been deployed, managing director and chief executive Ramesh Jogani said.
Located in south Mumbai’s upmarket Worli locality, Omkar’s slum redevelopment project will have two 60-storey residential towers and an office building. It has been designed by London-based architecture firm Foster+Partners and is part of the 10 million sq. ft area the realty firm is developing.
In slum redevelopment projects, builders typically relocate slum dwellers to new housing units and develop and sell the rest of the area at the market price.
PE funds and non-banking financial companies have been a source of relief for many developers in recent months as banks have tightened lending norms.
Analysts said developers in Mumbai have found it still more difficult to raise money because of delays in project approvals and slowing sales.
“What drew us to this transaction is that even in the current scenario. which is challenging, Omkar has launched four projects in the last six months in Mumbai, when the city has seen few fresh launches and that approvals were in place for this project,” Jogani said. “The demand for capital by developers is still very, very high but as a fund, we will pass on the money only to opportunities in good locations, with capable partners and that come with a big value proposition for us.”
Indiareit last invested about Rs 250 crore in a residential project in Gurgaon being developed by Ambience Ltd, three months ago.
Although the slowdown in sales has hit the luxury housing market in Mumbai the most, Varma of Omkar said the right location and the right ticket size will always find buyers.
“Our focus will continue to be in doing redevelopment projects in Mumbai,” he said.
Omkar, which has a land bank of 20 million sq. ft, had a joint venture partnership with Unitech Ltd. It was dissolved last year, mainly because Unitech decided to scale down development plans in Mumbai.
PE funds have invested about $597.24 million (around Rs 2,691 crore) this year across 15 transactions at project level in the real estate sector, according to VCCEdge, which tracks investments. In calendar year 2010, about $944.16 million was invested in 21 transactions. Most PE investments in the realty sector have been in the form of debt deals or structured mezzanine deals —which have both debt and equity components—that offer investors some form of protection, said analysts.
Jogani said the Omkar deal is an equity deal, like most other transactions done by Indiareit, which typically invests in private developers.
“The difference between structured and equity deals is the perception of risk and therefore the expectation of returns,” said Amit Goenka, national director, investment advisory, Knight Frank India, a property advisory. “Funds today are keen in doing structured debt deals with fixed guaranteed returns because they also prevent a downside risk in the investment.”
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