Motilal Oswal Real Estate, the real estate-focused investment arm of Motilal Oswal Private Equity Advisors Pvt. Ltd, plans to invest around Rs800 crore this fiscal year and will raise a new fund once it closes the current one, said a top executive.
The firm is currently raising capital for India Realty Excellence Fund III (IREF-III), a Rs1,250 crore fund, of which it has raised Rs940 crore so far, and plans to close it in the next three months or so, after some delay caused by demonetization last November.
Motilal Oswal has so far deployed Rs450 crore from the money it has raised, far below the Rs600-700 crore it had planned to invest last year.
“Fundraising was impacted by demonetization temporarily and took longer than we anticipated but it is back to normal now,” said Sharad Mittal, director and head, real estate investment, Motilal Oswal Real Estate.
IREF-III is a residential-focused fund that also selectively invests in commercial office projects, in deals that are typically in the Rs80-100 crore range. It undertakes structured equity and mezzanine investments and focuses on mid-income residential projects with some amount of approval certainty.
Mittal said investments slowed during the November-January period because most developers did not want to launch or undertake new projects, and there was no early-stage money to give.
Plans are on to launch a fund later this year, once the current fund is fully deployed. The new fund will be larger—around Rs1,500 crore in size—and will do structured equity deals.
From the current fund, Motilal Oswal has invested Rs90 crore across three commercial office projects of Phoenix Infratech Pvt. Ltd in Hyderabad, Rs130 crore in Mumbai-based Rajesh Lifespaces’ residential project and around Rs90 crore in ATS Infrastructure Ltd’s residential and office projects in Noida, among others.
“It is getting difficult to underwrite deals in Mumbai from the cost structure perspective. We like investing in the price bracket of Rs4,000-6,000 a sq. ft in tier I cities, except Mumbai where we look at around Rs14,000 a sq. ft for decent margins and good demand. Investing in NCR (National Capital Region) is a big challenge, where finding good developer partners is tough,” Mittal said.
Going forward, it plans to do more deals in Hyderabad and strike deals with existing partners and add a few new partners.
Four years into the slowdown, real estate funds that invest in residential projects have slowed investments as property prices remain stagnant, sales tepid and the same set of projects come up for multiple rounds of refinancing.
“Demonetization caused a short-term blip but both fundraising and deployment of capital have been challenging for real estate funds for a while now. While fundraising has slowed down considerably due to uncertainty in the property market here, deployment has also been a challenge due to the lack of good quality deals, weak project cash flows and stretched balance sheets of developers,” said Rajeev Bairathi, executive director and head of capital markets, Knight Frank India.