IDFC Alternatives raises Rs760 crore realty fund

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Bengaluru: IDFC Alternatives Ltd, the real estate investment arm of IDFC Ltd, has raised its third real estate fund of Rs760 crore from domestic investors, with a large chunk of it coming from its existing investors.

The IDFC SCORE Fund is a structured credit fund that will invest in residential projects in key property markets, and aims to provide fully secured, but flexible, debt to real estate developers.

IDFC Alternatives has raised the fund at a time when investors are sceptical about backing real estate projects and several funds are trying to win over foreign and domestic investors.

“Real estate markets continue to be slow and the need for capital remains high. We remain risk-averse and will invest in projects that have approvals and have been launched. As long as the developer is good, we are willing to be flexible and be little patient on repayment,” said Ritesh Vohra, partner (real estate) at IDFC Alternatives.

Its first fund—IDFC Proprietary Office Fund—of Rs700 crore raised in 2011-12 has already exited its investments, generating a 22% internal rate of return (IRR). In 2014, the Rs750 crore IDFC Real Estate Yield Fund was raised, which has been fully invested and has returned over Rs350 crore to its investors.

“This is another milestone for our real estate investments business that has been expanding its footprint steadily. We have been singularly focused on steady deployment and timely exits in all our current funds and plan to execute on the new fund in the same manner,” said M.K. Sinha, managing partner and CEO, IDFC Alternatives.

Despite the three-year slowdown in real estate, fund managers are actively raising capital from both domestic and foreign investors. Most of them offer structured debt to mid-market, under-construction residential projects without taking equity risks. Refinancing existing loans has emerged as one of the main reasons why developers have borrowed money, as project cash flows remain tepid.

IDFC Alternatives’s Vohra said its focus is on mid-market housing projects, which is a crowded field, with most funds wanting to invest in this space.

“Deal flow is slower than what it was two years back but we’ve taken a conscious decision not to do sub-standard deals. We’ll invest about Rs100 crore in each transaction, and aim to do 2-3 deals this financial year,” said Vohra.

This year, domestic fund-raising plans remain robust.

Essel Finance Advisors and Managers Llp plans to raise a Rs500 crore fund, Indiabulls Alternative Investments Ltd is raising up to Rs1,000 crore from non-resident Indians, persons of Indian origin and other foreign investors, and IIFL AMC Ltd has raised a Rs750 crore debt fund. Eagle Capital Advisors Pvt. Ltd has launched Alpha Advantage Real Estate Fund, which will focus on equity investments.

“Fundraising is a positive sign for the market, that shows opening up more investment opportunity for the market,” said Chintan Patel, partner, deal advisory—real estate and hospitality—at KPMG India.

“Real estate funds that have demonstrated fundraising experience, right strategy and right theme are the ones who will succeed in a fairly tough capital raising scenario,” Patel added.

Many fund managers are also planning to raise offshore funds. Indiabulls Group and IIFL Asset Management Ltd have incorporated entities in Mauritius to raise offshore capital for real estate investments for the first time.