Realty funds betting on low-risk commercial space

Mumbai: IDFC Real Estate Investments, the property investment arm launched in 2010 by Infrastructure Development Finance Co. Ltd, plans to initially invest in commercial office space from the proprietary books of the parent company before raising a fund next year.

“We are actively looking for deals in the commercial office space, especially IT (information technology) parks and IT special economic zones (SEZs) and certain commercial buildings,” said Chetan Dave, chief executive, IDFC Real Estate Investment. We are in the final stages of a few transactions.”

After the initial investments in commercial office space, IDFC Real Estate Investments will focus on residential property, specifically under construction mid-market apartment buildings and townships.

“We will look to raise different funds for different strategies next year,” said Dave, who prior to joining IDFC was managing director and chief executive of Sun Apollo Real Estate Advisors Pvt. Ltd, a real estate private equity fund in India.

The funds will be raised from both domestic and foreign investors, added Dave.

About 300 million square feet of office space had been built in India by the end of the third quarter of 2011, according to a report by real estate consultancy firm Jones Lang LaSalle (JLL).

Nearly three-fourths of the operational office space in India is built for the IT/IT enabled services (ITeS) sector, and this share is forecast to remain the same by the end of 2015, according to the JLL report. Mumbai and Delhi-National Capital Region (NCR) are the only two cities where non-IT space constitutes more than a third of the region’s total office stock.

“When it comes to commercial sector, we will invest only in the top seven cities, that is the metros,” said Dave. “With regards to residential we will look beyond metros.”

At least four real estate funds are raising about ₹ 2,000 crore to invest in rental yield assets because of the lower risk and regular income associated with such property.

According to R.K. Narayan, director, Infinite India Investment Management Pvt Ltd, which manages JM Financial Property Fund, two distinct categories have emerged in the real estate market—growth assets, which is residential property, and stable assets, which is rental yield or commercial property.

JM Financial Property Fund, the real estate fund of JM Financial Ltd, managed by Infinite India Investment Management, is aiming to raise a ₹ 400-500 crore rental yield fund from domestic investors. According to Narayan a typical size of a rental yield fund is around ₹ 500-1,000 crore.

“With regard to rental yield investments, the challenge lies in exiting from the investments,” said Narayan. “It’s only now that we are seeing large ticket transactions which should make it easier to get returns.”

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shraddha.n@livemint.com