Bangalore: Private equity (PE) firm Milestone Capital Advisors Ltd is close to buying apartments in bulk in Assotech Realty Pvt. Ltd’s project in Gurgaon, combined with an element of structured debt.

The investment is one of the last couple of deals that remains to be done from Milestone Domestic Scheme III, a 400 crore development fund, which has made eight investments so far.

Milestone’s deal reflects the way real estate PE funds are functioning and reacting in a sector where rising inventory levels and a liquidity crunch have brought the sector to a halt.

Earlier this month, Piramal Fund Management, backed by the Piramal Group, said it is looking to buy residential apartments in bulk from developers at a steep discount to market prices. Its new 350 crore Indiareit Apartment Fund, with an option to raise up to another 350 crore, has received commitments of around 100 crore from ultra-rich individual investors and family offices (companies that manage investments for a single family).

The Milestone deal is a 50 crore investment, which entails buying a bulk of the apartments in the Assotech project with a minimum pre-agreed internal rate of return (IRR), said a Milestone executive.

“This is one of the last deals from this fund. We will see exits happening from this fund," said Rubi Arya, director and vice-chairman, Milestone Capital.

An Assotech Realty spokesperson said it will take a few more days for the deal with Milestone to close and didn’t want to comment now.

The fund has also made its first exit from an investment of 15 crore in a residential project in Bangalore being developed by Jain Heights. It exited the investment last year at a gross IRR of 25%.

There is a two-fold strategy behind Milestone’s investment in Assotech, said Nitin Goel, partner, real estate investments (development funds), Milestone Capital: first, it gets a significant discount by buying in bulk, and stands to gain a lot when residential prices go up. The fund is only paying 40-50% of the discounted sale price and the balance is payable on possession, thereby reducing the risk. Second, assured returns from the developer enables the fund to structure the investment and reduce downside risk for investors.

“It’s a clear avenue of an opportunity for not only funds, but also for developers who don’t want to cut prices to sell stock to retail customers. But they don’t mind doing so when an institutional investor comes along and buys inventory in bulk," said Ravi Ahuja, executive director at property advisory Cushman and Wakefield India.

Ahuja said that during a time when sales have been stagnant and developers are hungry for liquidity, deals like these would adapt themselves well in such a scenario.

Close