Piramal Fund Management Pvt. Ltd, the investment arm of the Piramal Group, is set to launch a new financing scheme to invest about ₹ 500 crore in plotted development projects, a top executive said.
It will raise money from high net-worth individuals through its so-called discretionary Portfolio Management Service offering (where the portfolio manager decides where to invest).
The investment firm will deploy capital in the form of pure equity, across six-eight transactions with deal sizes ranging from ₹ 40 crore to ₹ 100 crore, with a focus on projects in Bengaluru, Chennai and Pune.
Plotted development projects are those where developers aggregate land, build basic infrastructure, and then sell plots of land to individual buyers.
Piramal’s strategy is an extension of its experience with earlier transactions with developer partners, where it typically extended debt funding to residential, and the rare plotted land projects.
Developers have traditionally funded plotted projects through their own internal funds or high-cost borrowings.
“This growth capital will enable developers to pursue identified parcels of land with institutional support, governance and risk mitigation strategies to earn a superior return," said Khushru Jijina, managing director, Piramal Fund Management.
Piramal has previously launched a number of other innovative real estate-oriented funds including its apartment-buying fund and the Mumbai redevelopment fund.
Investing in plotted projects couldn’t have been more timely, with a number of developers such as Embassy Property Developments Pvt. Ltd, Nitesh Estates Ltd and the Salarpuria Sattva Group starting to sell plots in a bid to generate quicker cash flows even as apartment sales remain tepid.
Plots sell faster, and need only basic infrastructure and fewer approvals than residential projects.
Piramal is targeting a gross gross internal rate of return of 28% even as it addresses the risks that are typically associated with land-related transactions.
“We strive to constantly innovate and bring to market newer products and fund strategies centred around constantly changing business needs—whether it is new fund strategies such as redevelopment and bulk buying apartment units or expanding our proprietary loan book to include construction finance..." Jijina said.
The discretionary portfolio management services route is something that Piramal has started tapping to raise capital by approaching its large pool of high net-worth investors on a project-by-project basis. It recently invested ₹ 200 crore in Omkar Realtors and Developers Ltd’s Dhobi Ghat slum redevelopment project in Mumbai through the same route.
Developers today need different kinds of funding at different stages of a project and private equity funds are trying to provide a range of investment options across the capital spectrum, for the former to choose from.
“Capital is needed at various stages of the project. Land acquisition needs to be funded differently from a project that is midway through its development," said Shouvik Purkayastha, executive director at property advisory Cushman and Wakefield.
“Capital also needs to be structured in a manner that matches the cash flows from the project. Thus, funds structure their debt and equity products in a manner that addresses the market requirement without compromising their core investment mandate," he said.