Godrej Properties has secured commitments of Rs 770 crore ($138 million) from a group of foreign investors, led by Dutch pension fund manager APG and also including asset management firm Sparinvest Property Investors, for a residential property development platform. The investors have acquired 71 per cent stake in the joint venture while Godrej Properties will own the rest.
This values the venture at $195 million. The latest transaction translates into the biggest deal in the real estate space this year and Macquarie Capital (India) acted as the sole financial advisor to the transaction.
The platform will focus on developing mid-income residential properties in Mumbai, Delhi-NCR and Bangalore besides looking at opportunities in Pune and Chennai. Godrej Properties will be the exclusive developer of the projects and will also get development management fee.
This initiative would be different from Godrej Properties’ existing asset-light strategy. Unlike a realty company that buys land and then develops it, Godrej Properties forms joint ventures with landowners to develop a piece of land. This allows it to develop properties without committing a large capital to buy land parcel and thereby, keeps its debt level in control.
The new platform will enable the company to capture outright land purchase transactions in the current market scenario with returns expected over the next seven years.
Godrej Properties’ scrip rose 0.13 per cent in early mornign trades and quoting at Rs 528 a share on the NSE on Monday. At the last traded price, the scrip is close to its one-year low.
Pirojsha Godrej, managing director & CEO of Godrej Properties, said that the new venture would enable the company to source deals with large capital requirements in its focus markets. “This is an important growth opportunity for Godrej Properties, which will allow us to extend the number of projects in our portfolio while maintaining our capital-efficient land sourcing strategy,” he added.
Godrej Properties has brought in private equity investors in some of its projects in the past but all of them were small-ticket transactions. Although the latest deal is for a platform that would develop a string of mid-sized projects, at an umbrella level, it would be the biggest such project involving private investors.
Talking about the interest in developing projects in tier I cities in India, Sachin Doshi, senior portfolio manager for APG in Hong Kong, said, “In our view, these cities will continue to be long-term beneficiaries of India’s urbanisation trends and also represent the deepest pools of residential demand in the country.”
APG manages pension assets of 4.5 million active and retired individuals from both private and public sector, totalling about €300 billion (as of March 2012).
Sparinvest is putting money in the venture through Sparinvest Property Fund II, a global real estate fund of funds. Established in 2005 and managing assets of €700 million, Sparinvest is currently investing out of its second vintage fund.
(Edited by Sanghamitra Mandal)