Bengaluru: Affordable housing company Mahaveer Group has raised Rs380 crore from Piramal Finance Ltd for five of its projects in Bengaluru, three people familiar with the transaction said.
The builder plans to mainly use the money as working capital and partly for refinancing purposes. Piramal has extended the money as construction finance. A small part of it will be used to give an exit to Motilal Oswal Real Estate Fund, which had invested around Rs22 crore at an early stage of a project.
This is the second large deal in budget housing after Mahindra Lifespace Developers Ltd—the real estate arm of Mahindra Group—partnered with HDFC Capital Advisors Ltd in October to jointly invest Rs500 crore over the next three years to develop affordable housing projects.
While that transaction aimed to invest in affordable housing projects by providing patient capital in the form of long-term equity, the Piramal-Mahaveer deal mainly taps the construction financing route.
“The five projects are in various stages of development, including early stage and advanced stage of construction. Most of these projects are being sold in the mid-income price category, at a base price of Rs3,300-4,400 per square foot," said Praveen Kumbala, managing director of Mahaveer Group.
In early 2016, private equity firm Peninsula Brookfield Investment Managers Pvt. Ltd had invested Rs100 crore in mid-income housing firm Mahaveer Group’s projects in Bengaluru. Kumbala said the repayment process is on.
Sharad Mittal, director and head of real estate funds at Motilal Oswal Real Estate, confirmed the Mahaveer exit and said the investment generated good returns. It had previously exited its investment in Skylark Mansions Pvt. Ltd in November. Both exits happened through refinancing by new investors.
A Piramal spokesperson declined to comment on the deal. Piramal, one of the largest lenders and investors in real estate, has grown its financial services business from Rs35,000 crore in December 2016 to Rs50,000 crore now, including both sanctioned loans and deployed money.
Construction finance constitutes a large portion of its book. Earlier in November, Piramal Group sanctioned a Rs400 crore loan to Gurugram-based Advance India Projects Ltd (AIPL) commercial office and retail projects, primarily for construction finance.
“The funding has been given for projects that are in the post-approval stage. Developers take on equity funding at an early, land acquisition stage of a project. Subsequently, they are replaced by debt or construction finance at a lower cost of capital," said one of the three people mentioned above, who didn’t wish to be named.
In a slowdown scenario, investors have been more confident about returns on investment in mid-income projects.
Kotak Realty Fund is in the middle of raising a new $100 million affordable housing fund, which will invest in projects with homes. IIFL Investment Managers, the wealth and asset management business of IIFL Holdings Ltd, plans to raise a real estate debt fund with a target corpus of almost $500 million that will focus on the affordable housing space.