Despite few deals, realty PEs on fundraising mode

The real estate sector in India, which is in a slump, is witnessing a flood of new or follow-on private equity (PE) funds in the market. Though funds launched last year found it tough to raise money, 2012 has seen more firms jumping on the fundraising bandwagon.

This is despite the fact that PE/venture capital (VC) deals in realty have come down drastically in 2012 so far. According to data from VCCedge, 17 deals worth $360 million took place till date in 2012 against 38 deals worth $1.3 billion last year.

But raising funds will be tough in this market. Hari Krishna, director, Kotak Realty Fund, said, “The old funds are trying to raise their second fund and, in my opinion, most will fail to raise second funds as investor appetite is very limited and, in any case, the track record of most funds has not been inspiring.”

REAL ESTATE FUNDS IN 2011
Figures in $million	Amount	Fund size
Red Fort India RE Fund II	264.5	500
ASK RE Special Opportunities Fund	114.3	220
Red Fort India RE Fund II	105.0	500
Milestone Domestic Scheme III	100.0	109
Kotak India Realty Fund IV	98.0	112
IIFL RE Fund (Domestic) Series I	98.0	98
Urban Development Fund	47.0	110
India Advantage Fund RE Series II	44.0	220
ASK RE Special Opportunities Fund	36.5	220
ArthVeda STAR Fund	16.0	40
Source: VCCEdge

IL&FS Investment Managers, Anand Rathi-Knight Frank, JP Morgan Partners, ASK Investment Advisors, Azure Capital Advisors, Lavi Real Estate Advisors are some of the firms in fundraising mode. Sanjay Dutt, former India chief executive officer of Jones Lang LaSalle, also plans to launch a realty fund. Amit Goenka, national director, Knight Frank India, said, “The risk weightage of real estate has gone up due to unending project delays, credit defaults, shallow market conditions, difficult exits and low returns.”

Krishna said, “Returns have been a function of years of investment. For instance, most funds have earned returns in excess of 25 per cent from their investments in 2005, 2006 and 2009. On the other hand, investments from the year 2007 and 2008 will significantly underperform and in some cases, investors will lose money.”

The poor market conditions and non-availability of bank loans have squeezed real estate developers, and PE has emerged as an alternative source of funding.

“The real estate industry is cash-starved due to slow sales velocity, cautious lending by banks besides growing land payments and interest obligations. Hence, most players are turning to PE players for raising risk capital,” Goenka said.


Source:www.business-standard.com