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Kotak raises $250M in new offshore realty fund

08 March, 2016

Kotak Realty Fund has raised $250 million (Rs 1,600 crore) in its third offshore fund, a development that comes at a time when foreign investors remain cagey about backing real estate as an asset class.

The real estate investment arm of Kotak Mahindra Group said the new corpus will be deployed in residential projects in the form of equity capital.

Equity capital had almost vanished from the market over the past few years but it is making a comeback now given the long-term opportunities in the sector. Kotak itself had raised $400 million to be deployed as structured debt in 2014. However, Vikas Chimakurthy, director at the fund, told VCCircle recently that the fund hadn’t sealed any transaction over the previous 12 months as the market was overcrowded with debt refinancing deals.

The new fund will back residential projects in the top six to eight cities and invest typically in the range of Rs 150-200 crore each. It doesn’t have any preference for city-centric projects over developments in suburbs and vice versa.

“There are no equity providers in the market. That’s why we raised this corpus,” Kotak Realty Fund CEO S. Sriniwasan told VCCircle. “We see good opportunity in the next one-and-a-half years and we are gearing up for that.”

A person close to the development told VCCircle the UK government’s development finance institution CDC Group has put in roughly Rs 400 crore in the new fund. The person said that the fund will aggressively bid for residential properties. However, Sriniwasan said the information isn’t correct.

Chimakurthy said the correction in the residential market will reflect in land values over the next few quarters. This, in turn, will make equity investment attractive. “We have sufficient dry powder from our previous pool of capital to address the structured debt requirements of the real estate industry. This new pool of capital will address the equity requirements,” he added.

The firm is separately working on a corpus for commercial real estate. It aims to tap into the demand-supply mismatch in office space especially now when leasing activity has picked up significantly. “That plan is still at a very nascent stage,” Sriniwasan said.

Fundraising from offshore investors, especially in a blind pool structure, has been challenging for domestic general partners. Global investors including sovereign and pension funds have increased their direct exposure to the sector with preference for managed accounts and platform deals. Over the years, limited partners have increased their engagement in the investment process and now seek a greater say in the deal-making process.

The offshore fund-raise by Kotak comes after a long gap as most firms out to mobilise offshore capital haven’t reached any significant milestone. As reported by VCCircle last month, ASK Property Investment Advisors scooped up Rs 1,000 crore from offshore investors for a fund launched in early 2013. Other firms out to raise offshore capital include Piramal Fund Management and HDFC Property Fund, among others.

Kotak Realty Fund has so far got capital commitment of $1.2 billion across four domestic and two offshore funds. It has invested in 40 projects across residential, commercial, industrial and hospitality segments. Its last fund ($400 million) has backed projects of Mumbai-based Lodha Group and Nirmal Lifespaces and Noida-based Supertech Group.

The firm is part of the alternative investment funds unit of Kotak Mahindra Bank. The unit also runs a sector-agnostic PE fund business.


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Kotak raises $250M in new offshore realty fund

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