Indiareit raises ₹250 crore fund for Mumbai redevelopment2 min read . Updated: 06 Jun 2012, 10:11 PM IST
Indiareit raises ₹250 crore fund for Mumbai redevelopment
Bangalore: Ajay Piramal-backed Indiareit Fund Advisors Pvt. Ltd has raised a ₹ 250 crore fund that will invest solely in redevelopment projects of slums, old housing societies and cessed buildings in Mumbai, said a top fund official.
It will raise another ₹ 200-250 crore before closing the fund in a couple of months.
The fund, Mumbai Redevelopment Fund-Series I, was raised over the past two months largely from individual investors in Mumbai, Delhi and other large cities. This is the only fund Indiareit is raising currently, after it decided to postpone its rental yield fund.
Despite the complicated and high-risk slum redevelopment process in Mumbai, Ramesh Jogani, managing director and chief executive of Indiareit Fund Advisors, said that having invested in slum projects earlier, the fund understands the dynamics of such ventures.
In slum redevelopment projects, builders relocate slum dwellers to new housing units and develop and sell the rest of the area at the market price. In Mumbai, Housing Development and Infrastructure Ltd and Hubtown Ltd (formerly Ackruti City Ltd) are among the largest such developers.
Indiareit’s latest investment was in a slum redevelopment project in Mumbai— ₹ 200 crore in Omkar Realtors and Developers Pvt. Ltd’s project in September. The investment was made from its ₹ 930 crore domestic fund.
“Since the capital outflow in such projects is less, and much of the initial capital is required only to clear tenants, deal sizes will be restricted to ₹ 40-80 crore," said Jogani. “We are also looking closely at our first deal and would explore opportunities to invest with Omkar again."
The fund will also explore an investment structure wherein it will ask for a security or collateral of about 1.5 times of the investment value, likely in the form of an existing project of the developer. So if it invests ₹ 50 crore in a project, it will seek as collateral lien over another development of the builder that’s worth about ₹ 75 crore till the site of the new project is cleared and negotiations completed with the slum dwellers—considered the most difficult part of any slum project.
Amit Goenka, national director, investment advisory, Knight Frank India, a property consultancy, said this is an appropriate structure for such long-gestation and risky projects because clean titled land is not available as security in any redevelopment project.
“For developers, there is not much choice right now, but in a sector where there is a good asset base that can be offered as security but little capital inflow now, this would work out well for both the fund and the the developer," said Goenka.
Private equity (PE) funds have invested about $394 million across 19 real estate deals in India so far this year, said VCC Edge, a research platform. In all of 2011, PE firms invested $1.35 billion in 39 deals.