For private equity (PE) firms, real estate turned from the most favoured to the most shunned sector.
For private equity (PE) firms, real estate turned from the most favoured to the most shunned sector.
Now, it seems PE’s have had a change of heart. With heavy debts piling up on the books of realtors and most sources of funds drying up, private equity (PE) firms are now the de facto ‘lender of last resort.’
Ashish Joshi, chief investment officer, Milestone Capital Advisors, said: “This is the best time to close deals as valuations are down to more realistic levels across asset classes.” Milestone has committed an investment of $600 million for realty investments and is in the final stages of closing some deals in Mumbai and Hyderabad.
Ramesh T Jogani, MD and CEO of PE firm India Reit, said, “Till March, the markets were bleak and no one seemed interested in investing. But now, the realty sector looks stable and lucrative.”
India Reit is in the due diligence stage of 3-4 PE funding deals and expects to close them in a month’s time.
Sobha Developers, which has a debt of Rs 1,800 crore as on March 2009, is among the realtors looking to raise money through the PE route.
J C Sharma, managing director, said the firm is willing to dilute up to 49% stake in SPV for a few projects in Bangalore, Pune and Gurgaon to private equity investors.
According to Jai Mavani, ED of consultancy major KPMG, PE’s have changed their approach while making investments. “There are no plain vanilla deals taking place, as investors have become more cautious. Now PE’s are looking at the developer’s ability to complete projects rather than their land bank,” he said. KPMG is currently involved in six PE deals related to realty companies.
Shriram Properties is in talks with Sun Apollo, Walton Street Capital and Starwood Capital Group for raising Rs 600- 800 crore for residential projects in Bangalore, Chennai, Coimbatore and Kolkata.
Arun Natarajan, founder and CEO of PE data-tracking company Venture Intelligence, said there were 76 deals worth $8 billion in 2008 as compared to 84 deals worth $7.6 billion in 2007. Most of the realty deals in 2008 were done in the first 9 months of the year. This year, however, only 3 deals worth $80 million have been closed so far.
Some PE firms find it an opportune time to invest in distressed properties that need funding for completion. Typically in such deals, as the developer has put in a lot of money before the project got stalled, the developer is desperate to raise funds and will offer attractive deals. Redfort Capital, for instance, is currently evaluating four such deals in Delhi and Mumbai, among others.
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