The target investment category of a real-estate fund is aligned to its analysis of the market needs.
Consider Red Fort Capital, which has been investing in Indian realty for over 15 years. In 2004, the fund started out by lending support to the commercial segment, given the strong demand for commercial office space. “For every 300 sq ft of office space leased, we forecast 900 sq ft of residential demand; so we invested in residential development projects in the area, if there were not enough,” explains Singh. A decade later, Red Fort has added logistics and warehousing to its portfolio to cater to that emerging industrial sector while, last year, it started to invest in schools to fulfil its goal of being a socially responsible investor.
“Opportunistic investment is flexible by nature and demand-based,” affirms Singh.
Nisus Finance Services Co’s exposures are also well explained by market realities. “We are mostly exposed to mid-segment housing projects in key metros, a location that accounts for 65 per cent of the national residential realty demand,” says Goenka. “We are also exposed to affordable housing, a segment boasting the biggest consumer base.”
“A typical real-estate development in India needs about 30-60 per cent equity money, with the rest coming from debt-like sources,” says Parry Singh, Chairman & CEO, Red Fort Capital. “For larger developments, as the quantum of capital increases, institutional investors like private equity tend to be a better fit.”
Amit Goenka, Managing Director & CEO, Nisus Finance Services Co, expects the inclination to work with real-estate funds to increase because their offerings, irrespective of whether those are equity, equity-linked, debt or quasi-debt funding, are likely to be better aligned to the ground realities of the real-estate business, making them friendlier financing options.
A good thing about real-estate funds is that “they offer flexible structured repayment options and are willing to fund a project at different stages, factors which are the need of the hour for most industry players,” says Suresh Castellino, Executive National Director, Capital Markets & Investment Services, Colliers International India.
“We are willing to step in at any stage of the development,” agrees Khushru Jijina, Managing Director, Piramal Capital & Housing Finance.
The flexibility of real-estate funds extends to the nature of their offerings.
“Our offerings span wholesale and retail housing finance and include structured debt, construction finance, flexi lease rental discounting and customised solutions for different stakeholders operating in different micro-markets,” elaborates Jijina.
For instance, the Mumbai Redevelopment Fund was the first fund exclusively focused on private equity investments towards slum redevelopment in Mumbai and the Apartment Fund focused on bulk buying individual units at a discount with appropriate risk sharing with the developer counterpart to arrive at a target return profile.
“Under SEBI regulations, funds are able to better tailor their investments than financiers governed by banking or non-banking norms,” observes Goenka. “They don’t require ongoing projects to be classified as non-performing assets owing to reasons such as the Commercial Operations Date (COD) (changing), which may be beyond the control of developers. This makes real-estate funding a more confidential arrangement allowing development companies that aren’t able to necessarily provide monthly or quarterly returns to go in for rearrangement and establish terms that are synchronised with their project cash flows without detriment to their credit rating or credibility.”
“Unlike commercial banks that tend to be more rigid about their end-use requirements and covenants, real-estate funds and NBFCs can better accommodate the practical challenges that developers face such as delays owing to reasons beyond their control,” observes Prateek Jhawar, Director and Head, Infrastructure & Real Assets, Avendus Capital.
Opportunism does not rule out the fact that real-estate funds are sensitive to industry challenges.
In 2004, Red Fort Capital invested in Prestige Tech Park II (Exora), in Bengaluru – a 2.2-million-sq-ft commercial development – thus, helping the Prestige Group promoter take on a project of bigger complexity with confidence, shares Singh. “When the 2008 crisis happened, Red Fort’s ability to fund additional capital in times of market desperation helped bring the project to completion.
So by the time the market turned in 2009-10, we had a fantastic development that companies like eBay, Linked-In, Juniper Networks and others were proud to occupy.”
At Nisus Finance Services Co, one of the focus areas is “brownfield projects stuck owing to capital mismatches,” to quote Goenka. “We believe we add greater value to the industry by bailing out stuck projects with good economic value and a ready consumer base rather than financing new projects in a scenario where the unsold inventory is considerable. It is more relevant to ensure that our capital provides the last-mile push to projects with waiting home buyers.”
- CHARU BAHRI