Capital from PE funds has been a a lifeline for real estate developers, which have used them for land payments, project construction and obtaining mandatory approvals, as loans from banks have dried up. Photo: Ramesh Pathania/Mint (Ramesh Pathania/Mint)
Capital from PE funds has been a a lifeline for real estate developers, which have used them for land payments, project construction and obtaining mandatory approvals, as loans from banks have dried up. Photo: Ramesh Pathania/Mint
(Ramesh Pathania/Mint)

IIFL closes two real estate deals; plans to raise two new funds

New funds will be raised from domestic investors and are likely to focus on investing in office and residential projects

Bangalore: Financial services firm India Infoline Ltd (IIFL) has invested 110 crore in a proposed residential project in Ghaziabad being developed by Shipra Group.

The investment was made through India Infoline’s private equity (PE) arm and its non-banking financial company.

In a separate transaction, IIFL Domestic Real Estate Series 1, the maiden PE fund of the group, invested an additional 30 crore in a Mumbai redevelopment project of Ruparel Realty.

The PE arm of IIFL is also planning to raise two new funds, once it finishes deploying capital from the first fund, which has a corpus of about 700 crore, said the fund’s chief executive Balaji Raghavan.

Capital from PE funds has been a a lifeline for real estate developers, which have used them for land payments, project construction and obtaining mandatory approvals, as loans from banks have dried up.

“The focus of our fund has been to invest in affordable residential projects of mid-sized property developers in key property markets," said Raghavan.

The two new funds will be raised from domestic investors and are likely to focus on investing in office and residential projects. “We will take a call on which one to raise first," he said.

In April, IIFL Wealth Management Ltd, an arm of India Infoline, raised 628 crore for its IIFL Income Opportunities Fund, the firm’s maiden alternative investment fund (AIF). The fund will invest in debt and debt-related securities of companies to generate periodic cash flows and a portion of it may be invested in real estate.

PE funds now rarely engage in pure-equity deals and the structures of the transactions have a debt-equity combination or sometimes just pure debt because banks have become selective about lending to property developers, said analysts tracking the sector.

The first transaction by IIFL is for a premium residential project at Indirapuram in Ghaziabad that has got approvals and construction is poised to start. The project is part of the existing Shipra Suncity township development.

“The fund raised from IIFL shall be used for the project and general corporate purpose," said Ajay Gupta, finance controller, Shipra Group.

The IIFL funding is the first of its kind for the group as the company had earlier raised funds from banks and NBFCs, he said.

Shipra, which has several projects in Noida and Ghaziabad, has developed townships, shopping malls, information technology (IT) parks and hotels.

In the second deal, IIFL has invested in a residential redevelopment project of Ruparel Realty in Matunga, a primarily residential area in Mumbai.

The investment has been made from IIFL Domestic Real Estate Series 1.

It’s the second time IIFL has engaged with Ruparel Realty for a deal. Last year, IIFL invested 35 crore in Ruparel’s project in suburban Chembur.

Ruparel has only recently started raising money from institutional investors.

The company is building a 40-storey tower in Matunga that will be launched in June, said Amit Ruparel, managing director.

“We have just begun raising capital from institutional investors and it’s mainly for specific projects," he said.

PE funds invested a total of $2.03 billion in the real estate sector across 58 transactions in 2012, according to VCC Edge, a researcher. This year, 17 transactions, with a total investment of $674 million, have taken place in the sector.

Though PE funds will continue to invest in real estate projects, much of it will be in residential projects with small to medium deal sizes of 50-100 crore each, said Rajeev Bairathi, director, investment advisory, DTZ International Property Advisors.

“Raising domestic capital in the current scenario is relatively easier than raising foreign money, provided there is a strong existing relationship with domestic high networth individuals in the former," said Bairathi.

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