Investments in real estate by private equity funds surged to $1,885 million (R11,687 crore) in January-September 2013, against $1,235 million (R7,657 crore) in the first three quarters of last year, shows data from VCCEdge, a data service by VCCircle. Total deal volume in 2013 year-to-date stood at 40, with a deal value of $1,891.23 million.
ASK Property Investment Advisors investing R147 crore in an ATS group project in Gurgaon; Kotak Realty Fund investing R110 crore in a project of TDI Infrastructure in Kundli; and ICICI Prudential PMS reportedly investing R80 crore in Kumar Urban Developments township project in Pune are some of the key investments.
This is in stark contrast to last year, when investments in value terms dipped 15% against the previous year. Funds found it difficult to raise money, leaving their investment pipelines dry. Existing funds were unable to show returns to their investors, which created obstacles for future fund raising.
However, data now shows that in 2013 to date, PE funds have raised $640 million (R3,968 crore), compared with $1,047.67 million (R5,553 crore) raised in the full year of 2012. While the numbers are not strictly comparable, PE funds say those who have shown exits are being able to raise further funds.
Those of us who delivered on our fiduciary responsibility to investors in the past have been able to return to the market and raise money. So you have seen some activity in terms of deployment this year, says Khushru Jijina, managing director, Indiareit, the private equity arm of the Ajay Piramal-owned Piramal Group. Indiareit has deployed close to R800 crore this year alone, says Jijina.
Activity on private equity exits has also picked up. Exits have doubled and surged to $507 million (about R3,143 crore) in the nine months of 2013, against $180 million (around R1,026 crore) last year, shows data. As for the returns, PE players say equity returns are in the 25% range, notwithstanding high inventory levels and slow sales momentum. Total deal volume of exits in 2013 year-to-date stood at 31, with a deal value of $583.35 million.
If one looks at the profit and loss accounts of most listed realty firms, their Ebidta margins are higher than 25% even in current market conditions. So as equity partners in a project, we are asking for returns that we see are being made by the developer, says ASK Property Investment Advisors CEO and MD Amit Bhagat.
Despite slow sales, there are projects in the market where investors have got over 25% returns, Bhagat adds.
Landmark, for example, an investment vertical of Dalmia Group, recently announced its exit from Wave Projects 4,500-acre Hi Tech City in Ghaziabad for R350 crore, 3.15 times of the R111.26-crore investment. Its another exit from ATS Group this year earned it a return 2.3 times on its investment, with an implied IRR of 24.5%, it said.
Other key exits include IL&FS Investment Managers exiting its stake in Bhartiya City, a 125-acre integrated township project in Bangalore for R325 crore, where it had invested R150 crore for a 26% stake in 2007. Godrej Properties bought back the stake held by HDFC PMS in two of its projects in Chennai and Chandigarh for R116 crore. The fund had invested around R100 crore in 2010. As per reports, ICICI Prudential PMS exited its investment in Shriram Properties Shriram Sahaana and Suhana residential projects in Bangalore with an average return of about 24.5% (across two of its funds).
Kotak Realty Fund director V Hari Krishna adds that a lot of new funds have also been closed in the past 12 months, both in domestic and offshore markets, which are reflecting in the uptick in investment activity. Another $1 billion of fund raise can be expected in the next 12 months, he says.
Kotak Realty International Funds $200 million and $150 million of fund raising by Indospace Logistics Parks II are some of the fund raises in 2013 so far, says VCCEdge. Indiareits fifth domestic fund the Mumbai Redevelopment Fund, which currently stands at R650 crore which raised R500 crore and has also started working towards a first close of its offshore fund.