Bangalore: Naresh Naik, former managing director at Morgan Stanley Real Estate Investing, has set up a non-banking finance company (NBFC) that will lend to both real estate and other companies.

Naik, who set up a real estate private equity (PE) business last year after exiting the Morgan Stanley fund, has raised about $25 million (around 136 crore today) from domestic and offshore investors for the NBFC, and will add another $50 million in three months.

Naik in a phone interview confirmed the development. Nachiket Naik, former executive director at UBS, will head the NBFC, he said.

Naik set up the NBFC by acquiring the licence from a Mumbai-based firm that he declined to name. The new NBFC, not formally named yet, is in the process of finalizing a debt transaction with a Bangalore-based real estate firm.

Naik, who resigned from Morgan Stanley in 2011, collaborated with Robert Naso, former managing director and head of asset management, Asia Pacific, Morgan Stanley Real Estate, to set up India Real Estate Partners (IREP) last year.

While the PE business will be confined to the property sector, only around 35% of the NBFC’s lending will be to real estate companies.

NBFCs over the past 2-3 years have played a pivotal role in lending to developers as banks became restrained in lending to the sector.

More PEs are likely to acquire existing NBFCs or buy out NBFC licences as this is a more convenient and faster way than applying for a fresh permit, said Ambar Maheshwari, managing director, corporate finance, at property advisory Jones Lang La Salle India.

“There are many advantages in NBFC lending, where an NBFC can lend on its own or 2-3 of them can lend together to a corporate, which enables them to do larger lending transactions," said Maheshwari.

Investment banking advisory Element Capital Pvt. Ltd acquired a Mumbai-based NBFC recently to be able to lend primarily to real estate developers.

NBFC capital is expensive, though, at interest rates of 20% and upwards, whereas banks lend at 13-14% and private equity funds charge 22-28% for debt transactions.

Gaurav Kumar, co-head, capital markets, CB Richard Ellis, another property consultancy, said the line between PE funds and NBFCs has disappeared with no real difference between the two.

“There is a lot of competition there, but real estate is a capital intensive sector and developers want access to capital always," said Kumar.

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