Inno Group, a global investment firm which has operations in Europe, Middle East and India, flush with a dry powder of $150 million, has tweaked its investment approach in India. It will now invest in own projects as opposed to third party developers. The private equity firm has till now invested $50 million in India.
According to Rajamannar Ramaswamy, Group Managing Director, putting money in projects developed and conceived in-house gives more control and reduces implementation risks. “We will not invest in another developer’s projects. Even though we hold a majority stake in every investment, there is not much control that you have over the developers,” Ramaswamy told VCCircle.
In 2006-08, the group invested in three third party development projects. The Promenade, conceived as a mixed-use commercial development of 1.1 million sq. ft. spread over 9.25 acres at Egattur, Chennai, now stands downsized owing to the global economic downturn which significantly affected commercial property market. The project has been entirely pre-sold to the international hotels group Accor. The other project is Bascon Township, an affordable housing project spread over 90 acres in the outskirts of Chennai. The construction is slated to start in May 2010 and the project is expected to be completed in 3 to 4 years. The third project is Mayflower Inno High-end Housing Project, a high-end housing development in Coimbatore in participation with Mayflower Enterprises. This project consists of about 290 high-end villas and some apartments encompassing an area of 54 acres.
Ramaswamy now feels that they have gained enough know how in setting up their independent real estate business. “We have gained the knowledge base, the professional and technical team to set up own independent real estate business. We have no constraint in raising funds as we already have investor trust and confidence", he said.
The real estate private equity firm will henceforth foray into projects conceived by its real estate arm (Inno Real Estate) and funded by its investment arm. The group essentially follows a pledge fund model whereby it raises capital from its investors on a deal-by-deal basis unlike a traditional committed private equity fund.
“We conceive a project, discuss with investors and raise funds for the same”, Swamy said.
The firm made its third party investments in 2006-08 from its funds IIROF (Innovative India Realty Opportunity Fund) and Innovative India Realty Opportunity Fund 2 ( IIROF 2). Following the change in the strategy, it raised Innovative India Realty Opportunity Fund 3 (IIROF 3) in December 2008 to become a full fledged developer with its flagship project Inno Geocity, a self-contained, 131-acre residential township project promoted by Inno Real Estate in the industrial corridor of Chennai, located at Oragadam, a growing industrial belt southwest of Chennai and spread over 131 acres.
About 90% of the investors into the fund are high networth individuals based in Europe, with commitments from a couple of institutional investors.
Ramaswamy added that this strategy of going independent has given much comfort to the investors as it provides control and ensures “completion of the projects faster”.
“We are a PE fund and a developer and there is no scope to the limitation of our growth – because of this combination.”Going forward, housing and infrastructure would be the key areas of investment for the group.
“On affordable housing, we believe in providing affordable value to our customers than affordable cost”, said Sajid Sathak, Managing Director, Inno Advisory (India) Private Limited. The firm is also putting together a logistics park and is currently in discussions with European logistics developers and service providers for “developing state-of-the-art value added logistics facilities across India.”
In tandem, the group is in full-preparation for floating a logistics PE Fund for mobilizing PE investments into these projects, Sathak added. The firm, based out of Chennai, feels that they can carve out a niche for themselves in the market as there are no local large developers there.
Ireo, another private equity fund dedicated to the Indian real estate sector, follows a model of developing and investing its own projects. It is however open to making investments into third party projects.