Bangalore: After Shriram Properties Ltd recently secured a $100 million (Rs440 crore today) investment from private equity (PE) firm TPG Capital, in one of the largest such deals in India’s real estate sector, the Bangalore-based company is working on expanding across India with two new businesses—hospitality and logistics.
The company, so far focused on residential developments in southern India, will deploy most of the new money in setting up two wholly owned subsidiaries as it diversifies its portfolio, managing director M. Murali said in an interview.
It will spend the balance on buying about 600 acres of land in the next 18 months to expand its real estate business in southern India.
Shriram Properties, part of the Rs25,000 crore Shriram Group, is one of the few cash-rich developers in the depressed sector, even after it decided to defer a share sale.
Its diversification plan comes amid liquidity concerns for the sector with banks having curtailed lending and borrowing costs having increased substantially, analysts said.
“We are now putting together teams for warehousing and hospitality and looking for land parcels between 20-50 acres each for our real estate business,” said Murali. “We will also buy distressed assets at a discount for the hospitality business, instead of developing hotels ourselves, and explore such opportunities in the office space and residential space too.”
So far, Shriram Properties, which has a 1,000-acre land bank, has received Rs936 crore of PE investments for its various projects.
The latest deal was at the company level. Before TPG, Walton Street Capital had invested in Shriram Properties in 2007. Murali didn’t give details.
TPG Capital has invested Rs325 crore in Shriram Properties in the first phase of funding and will give the balance before March.
Analysts say some real estate companies may be looking to balance their portfolios and hedge risk by entering new businesses.
“Warehousing and logistics is a good business opportunity to be evaluated if one has access to strategic locations and the right land parcels,” said Karun Varma, managing director, Bangalore and Kochi, Jones Lang LaSalle, a property advisory.
But he added that “hospitality and commercial office space... are high gestation business(es) that one has to balance with liquidity. The risks involved are that both the businesses are localized and one needs to understand the market well, particularly if one enters at a high price.”
Shriram Properties currently has 6.5 million sq. ft of space under development and plans to add 3.6 million sq. ft with its new projects this fiscal year.