Motilal Oswal raises $78M in second realty PE fund, eyes $117M in third outing

Motilal Oswal Real Estate (MORE), the real estate arm of Motilal Oswal Private Equity, has raised Rs 500 crore ($78 million) to hit final close of its second real estate fund India Realty Excellence Fund II (IREF II), the company said in a statement.

The fund had a target of Rs 300 crore with a green-shoe option of Rs 200 crore. It had hit first close at Rs 225 crore last year.

From the corpus raised, it has so far tied up with Shriram Properties for the realtor's mid-income residential project located off Old Madras Road in Bangalore. It has also disbursed money to Rajesh Lifespaces for its upcoming residential project located in Vikhroli, Mumbai.

Another investment has gone to ATS Infrastructure in Noida where it has come in at the second phase of a residential project – ‘Pristine’ located in Sector 150. It has also sealed investment in Chennai with Casa Grande for acquisition of 5.5 acres of land in Alandur.

Taking into account earlier investments with Ahuja Developers in Mumbai and Mahaveer Group in Bangalore, the fund has now committed more than Rs 385 crore and is looking to deploy the balance capital by August.

Sharad Mittal, director and head, MORE, said, “From the current fund, we have disbursed around 80 per cent of the corpus in top five cities over the last 15 months. We plan to deploy the balance capital in next three-six months and follow it up with a third real estate fund.”

With the fundraise process for the second fund wrapped up, the firm is looking to scoop up Rs 750 crore in the third outing. As first reported by VCCircle, the company is looking to raise Rs 750–1,000 crore in this proposed fund and will broadly follow the strategy of its current fund.

In a recent interaction with VCCircle, Mittal had said, “In our second fund, we have largely done mezzanine debt/equity transactions. Going forward, we would continue to actively pursue deals in that segment. Pure debt space too is crowded with stiff competition from some of the NBFCs since their cost of capital is much lower. Equity-flavoured transactions should return as the economy gathers momentum and there is clarity on the tax issues, GAAR, etc.”

MORE's first fund, which was launched in 2008 with a corpus of Rs 200 crore, is under exit mode and it has already returned 80 per cent capital back to its investors.

Fundraising activity for real estate has picked up after a turnaround in investor sentiment post the formation of the new government in May 2014 and it is expected to gain momentum further. The domestic firms out on the road to raise capital include ASK Group for its third domestic fund (Rs 1,500 crore); Domus Capital (Rs 300 crore); Kotak Investment Advisors ($250 million for equity deals in affordable housing space); and Religare Global Asset Management ($350-500 million asset pool).

Capital flow in Indian real estate is pegged at $527 million across 16 deals in the first quarter of 2015, up from around $100 million in Q1 2014. Sequentially, it has declined from $796.30 million in the last quarter of 2014, according to VCCEdge, the data research platform of VCCircle.

While residential property sales have remained slow in the last one year, capital flow has gone up and is expected to move up further as outlook for the market is positive.

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