Indiareit Fund Advisors, promoted by the Ajay Piramal Group, is looking to raise two realty funds in the next six months and planning a number of exits, at a time when private equity activity in real estate is rather slow. Khushru Jijina, managing partner, Indiareit, talks to Raghavendra Kamath about the fund-raising plans and investment strategy. Edited excerpts:
How much money are you planning to invest in the next one year and how many exits can we see from Indiareit?
If you were to look at our history as a fund manager, we have been consistent in both fund-raising and deployment. We typically tend to make between three and six investments each year, deploying on an average between Rs 400 crore and Rs 700 crore each year, with the exception of 2009. Over the next 12 months, we will originate transactions according to the investment guidelines of Domestic Fund IV (a general purpose development fund) and the recently closed Mumbai Redevelopment Fund. In September, I announced around Rs 1,000 crore of exits over the next 12 months and we stick to the same, having already reported the first leg of exits recently, Rs 440 crore across four transactions, that have already been term-sheeted.
What is the progress on your fifth domestic fund and $ 500-million offshore fund?
We are well under way with our Rs 750-crore next domestic fund V and have already reached a first close of Rs 50 crore and are stepping up placement effort in this regard. We are also in conversations with certain cornerstone/ anchor investors for our next offshore fund and will probably reach a first close in the first of second quarter of 2013. We have scaled down the targeted corpus from $500 million to $350 million. We believe in medium-sized funds, which help in sensible investments and getting good projects.
What has been your experience with recent fund-raising activity? Do you think it is taking more time to close funds now?
Yes, the fund-raising cycle has definitely slowed, given the macro environment we find ourselves in. The slowdown is evident in certain geographies, but the right sponsor, coupled with the right management team and the right strategy, should be able to source new capital. We currently manage approximately Rs 4,800 crore. In fact, our recent Mumbai-focused Redevelopment Fund was raised over two quarters. So, clearly, the track record is the key. Fund raising offshore does tend to be slower, given India has been largely mis-sold in the past. Many funds went out in 2006-07 and raised millions of dollars on the back of nothing more than a story. This money was then spent in a hurry, with too much capital chasing too few deals. Many of those initial investors are yet to see the return of their investments and are hence, waiting on the sidelines before making fresh commitments to the country.
Will there be any change in your investment strategy?
The three broad tenets of our strategy—tier 1 cities, residential focus and minimal leverage—remain the same. Also, as before, we are extremely focused as a fund and as a team in partnering with the right developers, with a strong record of execution capability, project completion and successful private equity partnerships. We are fortunate to have found such partners in the past (and we have both multiple transactions and multiple exits with a few of our existing partners as a result) and will continue to be as stringent in partner selection. While we have been primarily equity participants in the past, albeit with strong downside protection and partner alignment measures in place, we are not averse to ensuring an appropriate risk adjusted return by means of structured deals.
What is your take on different property markets in the country? How are they faring?
We have always been focused on tier 1 cities and end user affordability within each micro market, ensuring that we build to end user demand/offtake rather than speculation. While one cannot generalise, Mumbai and NCR (national capital region) have seen strong sales and absorption figures over the past 12 months, while good economic density, progress in infrastructure development and growing influence of IT have spurred sales in Bangalore and Pune. However, sales and absorption figures are clearly a direct result of affordability, indicating a clear trend of demand support only at the right’ price points in the various micro markets. Thus, those micro markets that are not priced appropriately e.g. parts of central and south Mumbai and Gurgaon within the NCR are seeing a slowdown in offtake.
Where do you want to see Indiareit by 2015?
It has been a short three months since I took over the management of Indiareit. While I deliberately put a pause on our fund-raising efforts to prioritise and focus on exits, given we are well under way with the process of extracting value and returns from our vintage funds, we have now moved towards the growth path. Our first deal from the Mumbai Redevelopment Fund is due to close imminently and we have a pipeline of transactions that would more than accommodate our subsequent drawdowns both for the Redevelopment Fund and the Domestic Fund IV. Separately, we have formed a senior internal team to map out the path forward, given we are extremely focused as a group and a business to build on our already established credentials and track record within the fund space and we will be implementing this strategy over the coming months.