Launch of 2nd real estate fund by Essel Finance

Essel Financial Advisors and Managers (EFAM), the private equity arm of Essel Finance, launched its second real estate fund with a target of raising upto Rs.250 crore. The real estate fund will be invested in various residential projects across cities such as Delhi NCR, Mumbai, Chennai, Bengaluru and Pune. In a statement, the company has added that it will target 6-8 transactions.

CEO – Private Equity Abhinav Bhushan said, “Current market is an opportune time for investment in a debt fund like ours as we have locked in deals at attractive rates and the interest rates are witnessing a downward pressure.”

The fund will have a four year tenor and have set a target of 21.5% internal rate of return from its investments. Considering the firm anticipates maximum demand from the mid and affordable residential segment, the fund will focus on these segments due to its capacity to offer steady returns during downward phases.

The real estate fund has received the required approval from the concerned authorities and has been set up as SEBI Registered AIF category II fund.

Indian property market

In 2015, festive season or special Diwali celebration session in Mumbai comes with many surprise gifts from PM Narendra Modi as he relaxed the norms and regulations for foreign investment in Indian real estate sector. This year home buyers are discouraged by the rumors that real estate builders are unlikely to run out of money.

Since the opening of the market, government restrictions was preventing the global investors from putting their money in small and mid size construction projects, whereas; for global investors it was also tuff to make the exits of their money, but this festive season Indian government settles all restrictions with a stroke of a pen. Now global investors can invest their money even in completed commercial property projects as earlier they were not allowed to do that. After new rules some imported brands will be able to set up their own stores and in that Indian shopping malls will be proved as more valuable assets in near future. If like this PM Modi is going to respond every time after losing elections, so investors will gladly wish him more defeats.

Cash strapping Indian real estate developers aren’t complaining about the investment policies and foreign investment regulation, which announced at the evening of Tuesday. Now Indian real estate developers can redevelop small projects with more luxury and facilities at the centre of the city with foreign equity. In past due to rumors that Indian real estate builders are unlikely to run out of money, many home buyers get discouraged from investing in the market. In present, purchasers have no idea that when they will get the possession, however in top six cities there are more than 70% of unsold homes which are getting delayed by east 18 to 24 months for completion due to lack of funds, as per the reports of Rising Straits Capital Management, a private equity firm located at Singapore and has invested $1 billion in focused Indian real estate and infrastructure sector.

However; it’s clear that access to foreign money will not repair the financial foundations of builders because intolerably high cost of capital is meaningless until the domestic banking system becomes more confident about lending money to Indian builders. But it is expected that this new investment policy will at least stem further rot. Liquid, income generating real estate sector is ready to attract new foreign investment because of family offices of wealthy NRIs. However; in India US and Australian property projects are offering return of 14 to 15 per cent, but still its hard to get real estate funds in less develop Indian market at least then when annual depreciation in of rupee is about 5 to 6 per cent. It is expected that in coming year’s Indian property market will emerge as a viable asset class for global investors. Whereas; real estate investment trusts can speed up the process of construction in India.

Altico Capital to finance 450 cr project in Mumbai

The non-banking financial company (NBFC) of Asia-focused investor Clearwater Capital Partners LLC, Altico Capital India Ltd. Has given Rs.450 crore of debt financing to an upcoming residential project in Mazgaon, south Mumbai.

The project will be a joint venture of Radius Developers and Sumer Group which is yet to be launched.  Under the plan, five 65-storey residential towers measuring 3 million sq. ft of saleable area will be developed.

The transaction is structured in the form of non-convertible debentures (NCD) with a four-year tenor, where the funds will be disbursed in tranches. The finance will be used to acquire the project from the land owner, settle tenants on the land and to start project construction.

Funding to the realty sector in the past three years has largely been in the form of structured debt financing, with both private equity (PE) funds and NBFCs aggressively lending to developers, giving the latter a much-needed source of capital especially when cash inflows have dried up due to weak sales.

“This was an exciting opportunity to back one of the most promising real estate entrepreneurs in Mumbai early in his new corporate evolution,” said Karthik Athreya, managing director of Altico Capital. “Our business is built around the significant existing opportunity to meet the capital needs of capable developers, who are in their growth stage with multiple projects that can enable their own growth besides repaying our debt at attractive IRRs (internal rate of returns) of over 18%,” he added.

Speaking on the deal, Sanjay chhabria, Managing Director of Radius Developers said, “We plan to launch the project early next year. The property is at a great location in south Mumbai and is ideal for residential development.”

Structured debt transactions in real estate are getting larger, sometimes with PE funds and NBFCs collaborating to do bigger-sized deals to meet developers’ demand for capital.