Fund sources dry up for realty firms

The funding avenues exploited earlier by real estate sector seem to have dried-up as investments in the sector shows significant decline.

Between March 2010 and December 2011, foreign direct investment in real estate declined by a drastic 92 per cent and its share in total foreign direct investment shrunk from 16.83 per cent to 1.94 per cent, according to a Knight Frank report.

Fate of fund flow through initial public offerings, qualified institutional placements and private equity is also similar. As a result, all hope is stemmed on revival in sales, said the report.

Samantak Das, national head research, Knight Frank said, “over the last few years windows of financing for the real estate sector has changed. While in 2009 the sector has witnessed funds coming through QIP, IPO, FDI but with the volatile market conditions these routes of fund raising have dried up. FDI funding has also reduced significantly due to slowdown in the global economy. Foreign investors also refrained from investing in the sector as there were delays in project execution and returns were low in many cases.”

Further people who have invested in the realty shares had also lost money and are refraining from investing in the real estate stocks, he added.
 

Since 2005, 21 realty firms have raised Rs 21,306 crore through IPO and FPO of which Rs 14,574 crore or 68 per cent was raised alone in 2007, post the opening up of FDI in real estate sector.

The year 2008 had no new issues in the form of IPOs or FPOs while there was just one issue in 2009. In 2010, post the global crisis, the economy saw some support in terms of stronger UPA government at the center which helped as many as five promoters to raise Rs 4,312 crore.

While QIP window opened up for the realty players, improved sentiments coupled with low interest rates resulted in pent-up demand translating into property sales. Of the total fund raised through QIPs since 2009, 84 per cent came in the year 2009 itself.

The year 2011 witnessed a phenomenon of high property prices, high interest rate and low sales. Dismal corporate earnings growth coupled with a weak employment scenario impacted the realty industry. Funding avenues like IPOs, QIP and FDI, which were harnessed in the earlier years¸ dried up.

Ravi Ahuja, executive director, Cushman and Wakefield said, “definitely avenues of funding for the realty sector has dried up in the last couple of years due to which there has been a 15-20 per cent price correction witnessed in commercial prices in some pockets of Mumbai and residential prices also witnessed a bit of correction.”

Realty developer’s holding capacity has strained as funding avenues witnessed a drastic decline.

Das said that the only option real estate developers are left with to raise funds are through private equity investment which are coming much costlier as they are not only picking up stake of companies but are also charging high interests. Source:http://m.mydigitalfc.com/news/fund-sources-dry-realty-firms-394

ArthVeda Scripting Seven Real Estate & Infra Funds, Eyes $2B AUM

Ropes in Lokanathan Nadar from Wadhawan Group to lead the infrastructure vertical.

ArthVeda  Fund Management has set the process rolling for four private equity funds in the real estate and infrastructure domain and is eyeing a total of seven funds with assets under management of around $2 billion by 2015, a top company executive told VCCircle.

ArthVeda  is a fund management company backed by private housing finance firm Dewan Housing Finance Ltd.

The plan appears bullish given the current fund raising climate. However, expectations of softening interest rates could help boost demand for residential housing. Even as overall economic slowdown has cast a doubt on prospects for commercial and retail property, the fund house could be betting on a bounce back in demand with interest rates peaking out.

Out of the seven funds in the planning stage, five is already on the table. These include two separate funds focused on low income housing projects besides a middle income housing fund , an asset class agnostic offshore fund besides an infrastructure fund.

Bikram Sen, chief executive officer of ArthVeda said, “In the next three years we will have asset under management of Rs 10,000 crore.”

The firm is in the final stages of planning to launch the two funds targeted at low income group housing projects. The first of these funds will be launched next month with a targeted corpus of Rs 250 crore. The fund will be raised in collaboration with Aadhar Housing Finance Ltd, the low income housing finance arm of Dewan Housing Finance. Aadhar was formed in partnership with IFC, the private investment arm of the World Bank, in February last year. The first fund will stay invested for a short term period of three years.

The second fund focused on low income housing will be a long term fund with a target size of Rs 500-750 crore. The fund raising for the second fund will happen in 2012-13.

Next month ArthVeda is also planning to launch a small offshore fund which will be open for investment in every asset class of realty sector, said Sen.

This comes after it recently launched a Rs 300 crore real estate fund, called ArthVeda Star Fund including a green shoe option of Rs 100 crore. The fund is focused towards green field projects in the middle income housing segment.

Sen said, “Around 75 per cent of the corpus of ArthVeda Star Fund will be invested in tier II and III cities and in suburbs of metros and for the rest we have flexibility but it will be dedicated to middle income housing projects only.”

He added, this fund will invest Rs 5 crore-25 crore in each project and around 34 investments will be made from this fund.  It will invest from the early stage as it is a purely greenfield focused fund and will exit the projects in three years or maximum four years.

According to Sen, ArthVeda Star Fund will manage to raise Rs 100-140 crore by the end of this month and it expects a final closure by March-April this year. Around 40 per cent of the fund’s capital is expected to come from institutions, banks, insurance trusts and rest from high net worth individuals. DHFL, the parent company will come in as an anchor investor. The fund is aiming at a gross return before expenses of more than 30 per cent.

Leveraging its parent, DHFL’s housing finance clientele in these markets, the fund has earmarked 16 cities across the country for its investments. It has already vetted and signed Memorandum of Understanding (MoU) for close to 16 projects. DHFL is tying up with a bank to provide construction finance to the developer where ArthaVeda Star Fund will invest.

Lokanathan Nadar To Head Infrastructure Vertical:

The fund house has also announced today the appointment of Lokanathan Nadar to lead the infrastructure vertical.

Nadar joins ArthVeda from Wadhawan Group, where he was CEO - Infrastructure & SEZ, where he was heading both the development of Pavana Multi Product SEZ and other Infrastructure initiatives of the group. He comes with almost 15 years of experience in the core infrastructure sector in the areas of project development & construction, conceptualization, business development, marketing and identification of new business opportunities.

“ArthVeda’s growth strategy is built around a number of verticals; we are already managing funds in the real estate vertical. With Mr Nadar joining the management of ArthVeda the company is opening up its infrastructure vertical. His wide and all round experience and in-depth knowledge of the core infrastructure sector will help us launch a series of specialized infrastructure funds,” said Bikram Sen.

Before Wadhawan Group, Nadar has worked with Sterling SEZ & Infrastructure Ltd as COO and prior to that he worked with IL&FS. Source: VCCircle

India Infoline Venture Capital Fund Raises Rs 500Cr Realty Fund

BY ANIL DAS;

The fund will invest in equity, debt & equity-linked instruments of promising real estate and construction companies.

India Infoline Venture Capital Fund, the private equity arm of the India Infoline group (IIFL), has completed raising a Rs 500 crore fund dubbed IIFL Real Estate Fund (Domestic) Series I, according to a company statement.

The fund will mainly focus on the Indian real estate sector and invest in equity, debt and equity-linked instruments of promising real estate and construction companies, which are either involved in projects/ventures or have significant growth potential.

“We will target deployment (of the fund) during the current year itself, focusing on leading and promising projects of top developers in major cities, which are ongoing or to be launched,” said Balaji Raghavan, CEO and CIO of IIFL Alternate Asset Advisors Ltd.

Last week, Red Fort Capital, a private equity real estate fund, raised $500 million from overseas investors for its second real estate fund focused on residential properties.

The last major fund in the real estate sector came when IL&FS Investment Managers Ltd raised $895 million for IL&FS India Realty Fund II, exceeding the target of $750 million. IL&FS India Realty Fund II, which was closed in December 2008, was the largest sector-dedicated fund followed by HDFC’s $800 million HIREF International.

Post-Lehman crisis, PE investments in real estate sector have taken a hit with overseas investors staying on the sidelines. Most of the fundraising has focused on domestic investors, typically HNIs and ultra-HNIs. Residential realty space has dominated the deal volume during the recovery while commercial real estate deals picked up in value in 2011. Source: VCCircle

Former SARE Group executives form new realty fund

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

PM mulls Rs.1,000 crore corpus for housing poor

New Delhi; (IANS) The government is considering creating a corpus fund of Rs.1,000 crore ($18.7 million) in the current fiscal that would encourage banks to give housing loans in “significant volumes” to the urban poor, Prime Minister Manmohan Singh said Tuesday.

Addressing a conference on the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) here, Manmohan Singh said the corpus of Rs.1,000 would be set aside to create a credit risk guarantee fund that could be used to cover any bank losses.

“Developing housing for the poor is critical for any strategy of sustainable urban development. Availability of bank credit will be a key determinant of successful implementation,” Manmohan Singh stressed.

“To encourage banks to lend in significant volumes to the economically weaker sections and low-income groups, we are considering the establishment of a credit risk guarantee fund with a corpus of Rs.1,000 crore, to start with, in the current year,” he said.

The prime minister said the challenges in urban development were “truly enormous” as he projected the Indian urban population to touch 600 million by 2031.

Currently 377 million Indians live in urban areas.

“Rapid growth will bring a faster rate of urbanisation. That is almost a corollary. As a result, our urban population is projected to increase to over 600 million by 2031,” he said.

Manmohan Singh emphasised the “urgent need” to focus on metropolitan planning, improving connectivity through better and larger networks of roads, expressways and highways.

He placed emphasis on better public transport in relation to affordable housing for the economically weaker sections of society.

“City planners must rethink traditional concepts of town planning. Master plans in the past did not consider spatial requirements for living and working of the poor. This must change, and change fast enough.”

He mentioned the government’s Rajiv Awas Yojana (RAY) launched this year for “creating inclusive and slum-free cities, while leveraging the value of land to generate revenues”.

“The aim is to achieve slum redevelopment and create affordable housing stock by providing assistance to those states that are willing to assign property rights to slum dwellers. This reform will give the urban poor a formal stake in the cities’ economic and social development.”