Bangalore: Kotak Realty Fund, a part of the Kotak Mahindra Group, has made the first investment from its newly raised $392 million offshore fund in a residential project in Mumbai, according to two people with knowledge of the development.

Kotak has invested 300 crore in Mumbai-based real estate firm Nirmal Group’s project in suburban Mulund. The investment has been done through the structured finance route. Structured finance, a combination of debt and equity, is emerging as the most preferred investment route amongst private equity (PE) funds in the real estate sector, as most of them are now hesitant to take equity risks.

“The project is in the early stage and construction hasn’t started yet," said one of the two people cited above.

This is Kotak’s second real estate offshore fund. It had raised $265 million from overseas investors in 2007. Around 52% of the investments made from the first fund has been sold.

The new fund received a commitment of around $200 million from Abu Dhabi Investment Authority, a sovereign wealth fund, in July 2013, marking the first close of this offshore fund.

From the second offshore fund, Kotak wants to do around 10-15 deals with an average transaction size of 150-250 crore, said the second person, who also didn’t want to be named, citing confidentiality.

“The entire corpus from the new fund should hopefully be deployed in 24 months," he said.

The capital will be used for the development of the project as well as to refinance some of its debt, said Simant Pradhan, chief financial officer of Nirmal Group. Nirmal Group raised an additional 150 crore of debt from a non-banking financial company for another project in Mumbai this year. The developer builds premium residential projects as well as townships in Mumbai.

Structured finance is the only way by which most real estate funds are deploying money these days, said Deepak Shandilya, senior director at MAPE Advisory Group Pvt. Ltd, an investment advisory.

“The two key reasons why developers are raising capital of this nature is because they need to refinance debt and for land acquisition," said Shandilya.

A number of real estate funds are currently raising capital from both domestic and overseas investors, on the back of a huge demand for capital by the developer fraternity as project sales slow, leading to piling of inventory.

While domestic capital is still easy to come by, offshore investors are more reluctant, said property analysts.

Financial services firm ASK Group, which plans to raise $200 million for a real estate-focused offshore fund, has raised $50 million from global investors on its own and has hired Cushman and Wakefield as a placement agent to help raise the remaining $150 million, said Sunil Rohokale, managing director and CEO at ASK Group.