HDFC Property Fund has hit the road to raise a $500-million special situations fund, which will invest in residential projects, both under development as well as buyout projects with ready, unsold inventory at a discount, a person familiar with the development said, requesting anonymity.
This is an offshore fund, which will offer long-term, semi-equity to projects in the top seven cities, and to smaller property markets such as Bhopal and Indore. The focus, as is the case with most residential investors today, will be on mid-market and affordable housing projects, where homes are priced at ₹45-60 lakh.
Deal sizes will vary from ₹75-80 crore in smaller cities and ₹250-300 crore in the metros. The projects’ profile will vary from regular-sized housing projects to townships. The fund is expected to be raised this year itself.
A couple of prominent financial institutions are expected to come in as anchor investors in the fund.
Fund-raising has been a challenge for many alternative investment funds (AIF) in India, particularly for residential projects, given that home sales have seen a prolonged slump, and prices have been stagnant for a few years now. Limited partners (LP), or investors, who back these funds have been wary of the road ahead for the residential sector, even as the commercial office space has performed rather well.
“This time, the fund will focus on brownfield developments where the developer can’t service debt, but also on projects, with unsold, ready inventory, which can be bought at a discount. The fund can wait for 2-3 years, and then sell the inventory," the person added.
The other strategy HDFC may explore is to go the rental way, and put some of the unsold, ready-to-live in homes on rent and generate annuity income.
This will be HDFC Property’s third offshore fund after raising a $750-million fund in 2007-08, and a $350-million fund in 2014-15.
HDFC Property Fund’s other focus will be to complete the remaining 4-5 exits from its previous fund, and return around ₹2,600 crore to its investors.
In March 2018, ASK Property Investment Advisors had raised a ₹900-crore ASK Real Estate Special Situations Fund (ARESSF) for under-construction housing projects, which were either stuck due to sluggish demand or the developer’s inability to complete the project due to lack of capital.
The investor is currently deploying capital both from the special situations fund as well as the Real Estate Special Opportunities Fund of around ₹1,400 crore that it had raised in 2016.
Amit Bhagat, CEO and managing director, ASK Property Investment Advisors, said there are two kinds of investment opportunities for a special situations fund in the market today. “There are weaker developers surrendering to stronger players in certain projects where we can come in, or in projects where the developer is good, but has taken debt and that can be replaced with our flexible capital," he added.