Despite the adverse wind Private Equity (PE) still in the real estate business. Though most of the PE firms reported to exit from the real estate field, some are still very active in the real estate business. Residential real estate oriented fund Raised by Motilal Oswal is such an example for this. Motilal Oswal, an India-focused PE firm reported that they were planning to raise an amount of Residential real estate fund of 500-Crore.
Mr. Somak Ghosh, Motilal Oswal’s newly appointed co-chief executive, said that the IREF-II (India Real Estate Fund-II) will provide a blend of debt and equity funding options to investee companies. This is going to be the second real estate fund for the private equity firm.
The first three quarters of 2012 has seen a large dip in the PE investments in the real estate market. According to Cushman & Wakefield, a well-known property advisory firm, comparing to the previous year’s investment and that of the present year there has been a bigger gap.
As PE funds remain incapable of delivering double-digit returns to their partners, there has been a 15% drop in transaction value this year. A number of these PE funds are forced to opt for syndicated transactions in place of directly approaching investors for the raising of funds.
Last four months saw some of India’s largest PE investors like Reliance Portfolio Management Services, HDFC Property Fund, IDF CBSE, etc. formalizing plans to launch new real estate- oriented funds.
In spite of the tough market PE funds remain optimistic in acquiring a return of 25% to 27% to the investors. This was very clear in the confident face and words of Mr. Ghosh who said that they were reasonable hopeful in achieving the target of 25 to 27% of return.
The new fund will be launched in with duration of 4 years. It will be launched with an option of two one-year extensions with an aim of making a return of 10 to 12 % return over the investments in its period of four years.
Mr. Ghosh added that they will have a maximum investment size will be 100-crore. There may be a one or two such maximum investment plans. The remaining fund will be invested in the size ranging from 50-crore to 60-crore.
He continued to say that the strategy can be turned around in accordance with the changing market. Thus he did not deny the fact if it would enter into the commercial real estate sector. If commercial real estate gives more opportunities then there should be a shift from the residential to the commercial real estate sector.
PE firm Motilal Oswal had launched its first real estate oriented fund (IREF-I) in the year 2007 -08. The fund had an amount of 165-crore. This entire fund was successfully invested in six properties. The second fund, which has so far received anchor commitments of up to 20% of its corpus, does not undervalue the chances of investments in cities other than the Metros.