Realty Funds Finding Tough To Raise Money For Residential Projects
Realty funds that invest in residential projects are finding it longer and tougher to raise money as investors remain sceptical about India’s housing sector. Deploying money is equally challenging, said fund managers, as home sales remain tepid, return expectations of investors are high and uncertainty looms over the sector.
Five years into the slowdown, non-banking financial companies (NBFCs) are aggressively lending to residential projects leading to downward pressure on lending rates, making it challenging for home-grown private equity funds.
IPAL Realty Funds Managers, which has a strategic partnership with Centrum Wealth Management, has put its plan to launch a Mumbai-focused real estate fund on hold. In early 2016, IPAL raised its first fund, IPAL Residential Opportunities Fund-1, a Rs 250 crore corpus with a co-invest option, which has been fully deployed.
In 2018, we want to focus on making exits from our earlier investments and will complete one exit. Fund-raising is challenging and it has to be a different concept or a unique theme without which it’s tough to raise money for residential projects today, said IPAL’s managing director and CEO.
First Eagle Capital Advisors Pvt. Ltd, which started raising its first residential-focused fund of Rs 500 crore a while back, aims to do the first close sometime soon. A first close is raising the first tranche of capital from investors, after which the fund starts deploying it.
MD, First Eagle said fund-raising has been tough given that many investors, particularly high-net-worth individuals, have burnt their fingers in real estate in the past.
Investors want to commit money to fund managers who have displayed a track record of deploying and returning the money and have a differentiated strategy. First-time fund managers will fund it tougher to raise money in this challenging environment.
ASK is currently raising a Rs 1,000 crore special situations fund that will provide flexible capital, in the form of preferred equity, to developers.
More than a year after a large foreign investor committed to investing $250 million in Arthveda Fund Management Pvt. Ltd’s affordable housing fund, the commitment has lapsed with the latter not drawing down the money.
Chief executive officer of Arthveda Fund Management said the firm is now focused on exiting and returning capital (from its previous investments) fast.
Deployment remains a challenge though there is tremendous demand for capital. There are opportunities to deploy in distressed projects but developers need to be realistic. Funds need to take more control of the way inventory should be priced among other things, he said. The key is to launch funds which are different from the others and convince investors.
Brick Eagle Capital Advisory Llp, a financial services platform that funds and advises low-cost housing developers, is raising a Rs 500 crore fund for budget housing projects with Rs 10-30 lakh homes.
A partner at Brick Eagle said ideally, the differentiated theme should work for the fund but one needs to tell investors that “we are different”. “The end-product is low-cost homes and the only way we can return money is by the sale of homes,” she said.
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