An edited version of this story first appeared in DNA Money edition on Friday, December 02. 2011.
Come 2012 and IndiaReit Fund, a subsidiary of Piramal Healthcare Ltd, will be looking to exit from 2-3 investments made from its developments funds till date. The exits are expected to give the real estate focused investment firm between Rs 450 to Rs 500 crore. The firm will also look to make a couple of new investments with some of their existing partner companies.
Ramesh T Jogani, managing director and chief executive officer, IndiaReit Fund Advisors Pvt Ltd, said, “We are talking on exits with all our investments but there is nothing that will happen in the next one or two months. It will take a couple of quarters for a few deals to conclude because when you talk to four people one might get active and eventually fructify,” he said without giving specific details.
Jogani said that since exits cannot be planned, the management basically works towards building on their entry point. “We have made enough exits from all our funds and when the time is right we take the exit call. The preferred route is selling back to the developer (buyback), exits through third-party or a real estate fund,” he added.
IndiaReit currently manages a corpus of over $900 million, spread across four funds (three domestic funds and one offshore fund), besides the AIM-listed Trinity Capital Plc. The investment firm recently invested Rs 200 crore in Mumbai-based Omkar Realtors’ mixed-use development at Mumbai’s premium location i.e. Worli. The investment was made from its Rs930 crore Domestic Fund IV.
Elucidating their approach to investing in current market scenario when investing in real estate is not concerned as smartest of the moves, Jogani, said that as a rule an investor must invest when times are not very good. “This is because you can get good opportunities. Investing into Omkar’s special purpose vehicle for the Worli development falls in this category and makes for a very good investment. Besides offering a prime location for development, we also have a very lucrative entry point with this investment. If we launch it at the right price, there is enough demand and the market will lap it up. I think liquidity is not an issue in Mumbai but affordability certainly is. We have worked out the affordability level and worked backwards before making this investment,” he said.
While the investment in Omkar SPV doesn’t give IndiaReit a stake it gives them preferred returns and a percentage on upside. “We have invested Rs 200 crore and if everything goes as per plans we should get 2.2x in terms of money multiple post tax,” he said.
The investment firm recently launched an Rs500 crore rental yield fund with a green shoe option of Rs250 crore. An offshore fund it will have a life of 6 years and money will be raised through high net worth individuals, particularly the non-resident Indians (NRIs) from Dubai, Middle East and Singapore. “It will be placed through leading players like ICICI and HDFC with a minimum investment of $100,000. An internal research was conducted to study the investor appetite and we found there was enough excitement in the investor community especially with rupee depreciating against the dollar. We have just started the road show and will take 5-6 months to close the entire fund raise,” said Jogani.
In terms of investment pipeline, the firm has been largely focusing is on five cities namely Mumbai, NCR, Pune, Bangalore and Chennai. It was also looking at the Hyderabad but since the real estate scenario there isn’t looking very good owing to political issue, oversupply in residential and commercial space the management has now de-focused from further developments there.
The firm is currently working with 9 partners however is not restricted to any opportunities outside these set of companies. The activity is largely in the residential and commercial segment and the investment sweet-spot is Rs70 – Rs80 crore in Tier II markets while it is Rs 200 crore in cities like Mumbai as properties are more expensive.
“Our chief reason to invest in a project is our lucrative entry point such that even if market falls beyond a certain point we do not loose money. For example if Rs100 is the selling price, I’ll remove Rs30 as construction expenditure so we are left with Rs70 and my entry price will be anything between Rs25 to Rs30. This approach allows us to make at least 2x returns from day one from any of our investments. If the markets go bad it could come down to 1x but if the markets improve we could get a return of 3x – unfortunately no one has seen that kind of returns (3x) in the last five years though,” he said.
Between the four funds, IndiaReit currently manages Rs 3,000 crore out of which Rs 350 crore is yet to be deployed. The Rental yield fund will add Rs 750 crore taking the available cash for investments to Rs 1,100 crore odd in calendar year 2012. “It is decent enough corpus to meet our investment activity for the coming year. Besides, fund raising is an annual affair for us so we may look to raise another one sometime next year,” he said.
IndiaReit’s current investment portfolio comprises 7 investments with a commitment of Rs620 crore across residential, commercial and hospitality projects. Seven investments with a commitment of Rs 290 core in Bangalore for residential projects. In the Hyderabad market, it has committed Rs 300 crore across 5 investments developing residential and integrated townships, 2 investments in Pune with a commitment of Rs350 core for residential and integrated townships, 1 investment of Rs24 crore in Chennai for residential project and Rs 20 crore for another residential development in NCR.
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