Home >Companies >PEs pump funds into realty despite prolonged slump

Private equity (PE) activity in real estate remained high in the first three months of 2016, though less than the corresponding period last year, as global funds and domestic investors continued to infuse capital in the hope of a recovery, even as the sector battles a two-year long slowdown.

Investment outlook for 2016 is strong, despite a comparatively slow first quarter, when many large domestic firms were in fund-raising mode and finished deploying their capital last year. These funds, which are expected to raise over $4 billion from Indian and offshore investors, will start deploying fresh capital in a few months from now.

Real estate funds invested about $410 million in residential, office and retail projects between January and March this year, compared with about $680 million in the corresponding period last year, according to VCCEdge, which tracks investments, and Mint research. The data is based on deals that were announced during this period.

Sovereign wealth fund GIC Pte Ltd stood out as the top investor during the period, when it bought a 49% stake in Viviana mall in suburban Mumbai’s Thane at an enterprise value of about 1,300 crore. The actual investment by GIC couldn’t be ascertained. In a second transaction, GIC and Brigade Enterprises Ltd concluded a land-buying deal with Kansai Nerolac Paints Ltd where the former bought 15.8 acres in Chennai for 550 crore.

In a partnership deal, Godrej Properties Ltd raised $275 million, for Godrej Residential Investment Program II (GRIP-II), a pool of capital, from a clutch of investors with Dutch pension fund asset manager APG Asset Management NV as the lead investor. The corpus will now start investing in residential projects across the country.

“While the market remains muted from a (sales) velocity stand point, we did not see a reduction in deal flow given our preferred position with existing and targeted developer counterparts. We also announced the first phase of our Piramal Preferred Partner programme, which seeks to sanction approximately 15,000 crore over the next year across selected partners. We look toward the next quarter. We are selectively underwriting pure equity transactions as well with a pipeline of large transactions across Mumbai, Bengaluru and NCR (National Capital Region)," said Khushru Jijina, managing director, Piramal Fund Management.

Piramal Fund Management, the investment arm of the Piramal Group, said it sanctioned 4,000 crore in the first quarter, of which a little more than half was a combination of senior debt and preferred equity transactions and the balance was construction finance.

In addition, Piramal also committed to a handful of land and structured equity transactions. Details of the transactions were not made public by Piramal.

The nature of investments in realty ranges from large-sized equity deals by mostly foreign investors such as Blackstone Group Lp and GIC and mid-sized and smaller deals, mostly in the form of debt in residential projects.

ASK Property Advisors, which does equity and structured equity investments in residential projects, invested about 615 crore last year and aims to deploy 1,000 crore this year.

“Though the demand for capital is huge, most developers need money for refinancing loans. The challenge for them, in the current scenario, would be to generate cashflows from projects and repay debt. We have been fairly cautious and only looked at projects with security of cashflows," said Sunil Rohokale, chief executive and managing director of ASK Group.

While the bulk of investments in India’s residential sector leans towards residential projects, the commercial office sector, which has performed much better, continues to draw investors.

This year, Blackstone Group Lp invested 470 crore in an ongoing office park project of Salarpuria Sattva Group in Hyderabad’s Knowledge City, marking the global PE fund’s first investment in the city.

Bengaluru-based Embassy Group, which has a large commercial office portfolio, partly backed by Blackstone, is looking to divest a stake in its project portfolio to raise nearly 2,000 crore. “We are in the process of talking to investors and expect the deal to be done in about three months or so," said Jitu Virwani, chairman, Embassy Group.

Property analysts believe that though the recovery in the sector is still some time away, investors will continue to aggressively back projects and realty firms they believe in. “The residential sector will see a surge in debt deals and good quality ‘grade A’ office projects will attract funds. We expect retail to also fetch a good amount of investment this year, depending on the quality and positioning of the mall and how it’s performing," said Shashank Jain, partner, transaction services, PricewaterhouseCoopers India.

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