PE Funds Bag Good Deals as Home Inventory Piles Up - Apartment funds buy residential buildings in bulk from developers at big discounts – (Economic Times – Link: epaperbeta.timesofindia/Article.aspx?eid=31818&articlexml=PE-Funds-Bag-Good-Deals-as-Home-Inventory-16122014006005) A record unsold apartment inventory of over 800,000 apartments and slow home sales are turning out to be an opportunity for private equity funds in the country and they are lapping up apartments in bulk from developers who are willing to give significant discounts for such deals. A clutch of private equity funds including Piramal Fund Management, Aditya Birla Real Estate Fund and a combine of former Indiareit head Ramesh Jogani and Centrum Wealth Management have launched apartment funds in the last few months. Indiareit Apartment Fund that is managed by Piramal Fund Management has already concluded two such deals -one each in Mumbai suburbs and Chennais Adyar area -and are in talks for a third one in Mumbai. Between these three transactions, the fund will have a total of ` . 125 crore deployed from the Rs500 crore it has raised since July when the fund was launched. Aditya Birla Real Estate Fund, which is part of the Aditya Birla Financial Services Group, has invested 150 crore to pick residential apartments from two developers in Mumbai between June and September.This includes Rs90 crore for 30 apartments in a project in Dadar and ` . 60 crore for similar number of flats at a project in Oshiwara in Mumbai. An email query to Apurva Muthalia, CEO of Aditya Birla Real Estate Fund remained unanswered until the time of going to press. “There is enough stress in the system today . Apartments are available for a significant discount and in certain areas and projects almost at replacement cost,“ says Ramesh Jogani, CEO of IPAL Residential Opportunity Fund, which is in the process of raising Rs 250 crore with a focus on buying apartments in bulk in the city of Mumbai.It also has a green-shoe option of raising another Rs100 crore for this fund. According to property brokers, builders are offering discounts anywhere between 25-35% for new projects when compared to ready projects in the same neighbourhood. Khushru Jijina, MD of Piramal Fund Management says an apartment fund enables the developer to block a substantial number of units for an institutional buyer.“The developer can use the proceeds to advance construction and delivery of the project and increase visibility of site progress,“ he says. For the investor, the fund allows them to access value deals in the market and participate in a `secured position with the benefit of a highly attractive price point, diligence and structuring compared to an individual transaction and that too in projects that have established sales velocity and construction timelines.“ Buoyed by the response, Indiareit Apartment Fund has exercised its greenshoe option to increase the size of the offering and is aiming to mop up ` . 700 crore . 350 crore.as against initial fund size of ` “The biggest challenge will be to exit without accepting any cash. They funds insist on all white deals, their returns might get compromised,“ says Anckur Srivasttava, chairman of GenReal Property Advisers. IPAL Residential Oppor tunity Funds Jogani says with the changing mood, he is hoping the gap between the price of early stage under-construction projects and completed projects should now get covered faster.“There is no speculation here,“ he says.The fund, in talks with a few builders in Mumbai for such deals in the ` . 1-3 crore price range for affordable luxury projects, will have an agreement with the builder to sell the apartments for them along with his inventory. Aditya Birla Real Estate Fund, too, is in talks for investments with bulk discounts with developers, said a person with knowledge of the developer but who did not want to be named. “These are equity deals with part payment made upfront and remaining on these under-construction projects receiving occupancy certificates,“ he said.
Posted on: Tue, 16 Dec 2014 07:55:19 +0000
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