Indiareit Fund Advisors, the private equity arm of pharmaceutical major Piramal Healthcare, which needs to provide returns to investors from its 2006-2007 funds, is planning monetising land parcels in Hyderabad where it invested about R250 crore. While it is looking to completely sell off the large parcels, it is trying to build houses or commercial projects on the smaller ones on its own or along with partners.
Indiareit now plans to use its development expertise to try and bring back value in some of its investments as the Hyderabad market shows signs of growth. Piramal Group also has a real estate development company called Piramal Realty, which is into construction and development of commercial and residential projects.
?We plan to use our skills as a developer and take over some of the development ourselves (in Hyderabad) so that we can start showing returns to our investors,? Indiareit managing director Khushru Jijina told FE. He refused to elaborate on the development potential or the returns that he hopes to provide to the investors through this new strategy, citing early days of development.
Despite a large supply of real estate over the last few years, Hyderabad failed to grow according to most forecasts including Indiareit?s, Jijina said. ?With the fast infrastructure development in the city, it was felt that demand for quality living will drive growth of real estate there. However, that did not happen and then the Telangana issue dented the demand further,? he said.
The market touched bottom in 2010-2011, while private equity exits in Mumbai, Bangalore, Kolkata and Chennai recorded average multiples of 1.2 to 1.4, Hyderabad saw returns of 0.2, according to real estate consultant Jones Lang LaSalle India.
However, the market since has improved with development coming back. Hyderabad saw 2.5 million square feet of office space absorption in the April-September period of 2012, and the average rental value saw an increase of 15% to R38 per sq.ft. per month over the same period in 2011, says another consultant Knight Frank India.
Residential demand driven by the IT/ITeS sector is also expected to be stable in the coming year, with absorption rate of 7%. Absorption rate is the rate at which available houses are sold in a specific market in a specific time frame. It is calculated as number of sales per 100 available properties, when calculated in percentage terms.
Jijina, who took over as MD of Indiareit recently, told FE that providing exits to its investors of vintage funds deployed in 2006-2007 is a priority. Indiareit, in December 2012, announced exits worth R440 crore from three of its earlier funds and one from a third party mandate. These included phased stake sale of an SEZ at Hinjewadi, Pune, being developed by Paranjape Schemes, and two projects of Ariisto Group in Santacruz and Goregaon, Mumbai.
These exits happened at an internal rate of return in the early 20% compared to 24%-28% achieved in the earlier exits, he said. The reason, he said, is trashy returns between 2008 and 2011, following the Lehman Brothers crisis. ?Rate of return is a function of how soon the money can be returned,? he said.