Two
senior executives of South Asian Real Estate Group, or SARE Group, an
investment and development company, resigned recently to form their own real
estate investment fund, looking to tap into growing demand from the sector for
non-bank capital.
Arvind
Pahwa, former chief executive of SARE, and Mehul Gala, former vice-president in
the company, are setting up Lavi Real Estate Advisors Pvt. Ltd to invest
largely in urban residential projects. SARE, meanwhile, has transitioned to
being run by an executive committee with David Walker as executive director,
said a spokesperson.
Pahwa,
who joined SARE in April 2010, is now non-executive chairman in the company.
Pahwa’s
leaving an established fund to turn an entrepreneur follows another recent
example of former Morgan Stanley Real Estate Investing managing director Naresh
Naik who too resigned to set up his own investment firm.
Though
real estate companies are queueing outside investment firms for money as bank
loans have become scarce and expensive, the slowing economy may pose challenges
for new funds.
Real
estate analysts warn now is possibly the worst scenario for capital raising, as
investors are less than convinced about the emerging India story and because
the real estate sector faces uncertainties owing to poor sales and a liquidity
squeeze.
“Raising
capital is not the easiest of things now,” agreed Pahwa, “but you have to look
at the right kind of deals and funding strategy.” For starters, Pahwa’s fund
will not look at land deals or projects that haven’t secured all the required
government approvals. Lavi will essentially eye small projects being developed
by mid-scale developers across prominent cities.
Pahwa
said Lavi’s first fund will raise more than $50 million (Rs.265
crore) and that he has already got commitments for a bulk of this from family
offices and other investors. “The next fund and ones after that would be larger
in size,” he said.
Lavi’s
investment strategy will be similar to that of several other funds, which is to
combine debt and equity funding with assured returns. Limited partners (LPs),
investors who typically back private equity funds, have not realized expected
returns from investments in Indian real estate and are therefore more cautious
about investing this time around, said analysts.
Naresh
Naik, who will raise a global fund, said LPs are reluctant to write cheques for
emerging markets and investors in India prefer a fund backed by an institution.
Balaji
Rao, after quitting as managing director of Starwood Capital India Advisors
Pvt. Ltd in 2010, set up Indic Capital Advisors Pvt. Ltd to invest in
hospitality ventures.
Rao, who is in the process of raising a $200 million fund, said that despite the challenges for the self-initiated, there are advantages in that one can choose the mandates they want to take up as there is no external pressure. Despite the obvious risks associated with start-up funds, both Pahwa and Rao believe one can put risk-averse strategies in place.
Rao’s
focus from the beginning, for example, has been on acquiring, executing and
buying out hotels in big and small cities. “There is a huge demand in the
mid-market hospitality space and we also saw an opportunity to step into
distressed assets,” he said. Source: Mint
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