Private equity (PE) investments in real estate rose sharply in the first six months this year, with global funds taking the lead in backing affordable housing developments, office parks and mixed-use projects.
During January-June, PE funds invested about $1.3 billion in 39 deals, compared with $892 million in 31 deals in the same period last year, according to VCC Edge, which tracks investments.
In the largest deal this year, SPREP Pte Ltd, a strategic alliance between Canada Pension Plan Investment Board (CPPIB) and Shapoorji Pallonji Group, bought out SP Infocity IT Park in Chennai for $220 million in its first acquisition, two years after the partnership was forged.
“SP Infocity IT Park is a high-quality property and is an excellent first acquisition for SPREP,” Andrea Orlandi, managing director, real estate investments, CPPIB, said in a statement on 22 June. “Through this investment by SPREP, CPPIB continues to demonstrate our long-term commitment to the Indian real estate market.”
In yet another office deal, global investor Blackstone Group Lp bought a commercial office project in suburban Mumbai for Rs.1,060 crore, including assumed debt, from HCC Real Estate Ltd and IL&FS Milestone Realty Advisors Pvt. Ltd.
With nearly 32 million sq. ft of office space across the country, Blackstone is now the largest owner of such assets in India, as the firm moves towards a potential listing of a real estate investment trust.
“While long-term global pension funds and PE investors are aggressively purchasing assets, there are a number of funds who are cautious as well. Deals are also taking longer to close as there seems to be a mismatch in pricing,” said Shishir Baijal, chairman and managing director at property advisory Knight Frank India.
Lodha Developers Pvt. Ltd recently raised Rs.542 crore by selling non-convertible debentures to Kotak Realty Fund for a portion of the former’s Palava project in suburban Mumbai. After that deal, Kotak Realty Fund is taking its time to deploy capital.
“We are being cautious in deployment because the real estate market is in a flux. Developers typically raise capital to either refinance existing obligations or for growth. Currently, most of the deals in the market are for refinancing because of slower sales pace,” said Vikas Chimakurthy, director, Kotak Realty Fund.
While demand for external pools of capital still remains high among developers, domestic PE funds are investing in those projects where there is some amount of cash flows.
“This is a good time to look for distress value deals, because the market is full of such opportunities and we also ensure that our margin of safety will be there,” said Sunil Rohokale, chief executive and managing director of ASK Group, one of the few funds which offer equity capital to developers in a market which is flooded with debt lenders.
Rohokale says the fund will acquire such land assets or residential projects that are fully approved and where some amount of construction has taken place.
ASK intends to invest around Rs.800-1,000 crore over the next 12 months.
While developers are borrowing heavily to refinance existing debt amid tepid project sales and weak cash flows, there are only a few who are raising capital to start new businesses and for growth.
Bengaluru-based Assetz Property Group raised around $116 million from Equis Funds Group Pte Ltd, as the realty firm gets ready to kick off its budget housing venture, that will build homes priced at Rs.25-50 lakh.
“The money is being used to build high-quality infrastructure in large format community developments,” said Ben Salmon, co-founder and chief executive, Assetz. “We are raising more capital as we continue to expand in Bengaluru with more projects.”
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