Kotak Realty Fund raises $250 million
Bengaluru/Mumbai: Kotak Realty Fund has raised $250 million from offshore institutional investors to primarily make equity investments in residential projects, at a time fund managers wary of equity risks extend only debt finance.
Apart from investing in residential projects in the National Capital Region (NCR), Mumbai, Bengaluru, Hyderabad and Pune, the fund will also selectively buy commercial office assets. With this, Kotak Realty Fund, part of Kotak Investment Advisors Ltd, has now raised over $1.4 billion. The year 2016 is turning out to be important for real estate fund-raising, with private equity (PE) funds on their way to raise more than $4 billion from overseas investors for real estate projects. “It is not easy to raise money in the current scenario. Fund managers who have showed the ability to not only raise capital in the past but also profitably exited investments are the ones investors have faith in,” said S. Sriniwasan, chief executive, Kotak Realty Fund.
The fund is in talks with various developers for potential transactions, and plans to commit around $25-35 million in each deal. Kotak’s $392 million offshore fund in 2013-14 had included a commitment of around $200 million from sovereign wealth fund Abu Dhabi Investment Authority. The fund had invested through so-called structured finance, which uses a combination of debt and equity.
“We have sufficient dry powder from our previous pool of capital to address the structured debt requirements of the real estate industry. This new pool of capital will address the equity requirements of the sector. We anticipate that the (price) correction in the residential market will reflect in land values over the next few quarters which will make the equity investment argument attractive,” said Vikas Chimakurthy, chief investment officer, Kotak Realty Fund.
Among the large fund-raising initiatives, Edelweiss Alternative Asset Advisors Ltd is raising up to $1 billion for its first realty fund. It is a structured credit, offshore fund. Housing Development Finance Corp. Ltd, through a new fund, has just raised a $850 million to offer equity capital to residential projects. IDFC Alternatives Ltd is also raising a $250 million offshore fund. There is tremendous competition among capital providers to real estate these days, with PE funds and non-banking financial companies aggressively lending to developers, who always need capital, given the prolonged slowdown in the sector. Such competition has also put downward pressure on lending rates.
Data from VCCEdge, which tracks investments, show PE funds in 2015 invested nearly $2.77 billion in real estate projects and firms across 81 deals, as against $2.1 billion over 90 deals in 2014.
“Equity capital is making a comeback not just as passive money, but in a more strategic way where fund managers have more control on the projects they invest in and work more closely with developer partners,” said Rajeev Bairathi, executive director and head of capital markets at Knight Frank India.
After over three years of unabated borrowing by developers due to weak sales, the process of deleveraging would need to start in 6-12 months’ time and therefore equity, not debt is the need of the hour, said Bairathi.