Bengaluru: Real estate developer Skylark Mansions Pvt. Ltd has raised Rs105 crore in structured debt from non-banking financial company (NBFC) Xander Finance Pvt. Ltd, primarily to give an exit to existing investor Motilal Oswal Real Estate in a housing project. The Bengaluru-based firm will also spend some of the money on the project Skylark Dasos on Hennur Road.
Motilal Oswal Real Estate, the real estate-focused investment arm of Motilal Oswal Private Equity Advisors Pvt. Ltd, had invested around Rs55 crore equity capital in the project at an early stage in 2015. This structured debt deal was done to significantly reduce the cost of financing for the developer.
“The transaction also funds approval expenses and creates a line of credit for project construction,” said Amar Merani, managing director and CEO, Xander Finance.
“The project, which has around a million sq. ft of saleable residential space, will be launched shortly,” said Saleem Sheriff, chairman and managing director, Skylark Mansions. Sharad Mittal, director and head (real estate investment), Motilal Oswal Real Estate, said that the exit process is underway.
Structured debt in the real estate sector is commonly given for refinancing loans or takeover of existing debt, last mile project funding, and construction finance for developers who may not be able to get bank funding.
“Opportunities for real estate lending have become tougher because on the ground, sales are far lower than before and a lot of existing transactions are leveraged to the hilt, thus making refinancing tough,” Merani said.
Earlier this year, Xander Finance had put in around Rs130 crore in Adarsh Developer’s project in Bengaluru. It has also been lending to projects in Chennai and National Capital Region (NCR).
The NBFC, which predominantly invested in real estate in 2016, has expanded its focus during this financial year.
It has made two structured debt investments in the education space and has been looking at opportunities in consumer-oriented sectors like healthcare, food processing, and logistics, which are inherently backed by good cash-flow generation.
According to a March research report by property advisory Knight Frank, NBFCs have gained significant market share over the previous two years and currently contribute about 18% of the total institutional funding requirement of this sector. While NBFCs have gained a larger share, from 12% in 2015 to 18% in 2016, PE funding has dropped from 61% to 58% in the same period.
Today, nearly 65-70% of domestic investments in real estate, both from NBFCs and private equity funds, are mainly refinancing transactions. “Debt is going to be the mainstay of developers trying to run their business on schedule. In a debt-centric market, investors have given money in anticipation that sales will return,” said Shashank Jain, partner, transaction services, PwC India.