The year 2014 proved to be a crucial period for Indian real estate market, as the formation of NDA-led government at the centre brought along an improvement in sentiment among investors. Sentiments relating to Indian real estate market moved from subdued in the first half of the year to a phase where investors across the world are now firming up plans to look at Indian real estate market as one of the top destinations for investment.
The sector ended the year attracting PE investment worth around $1.84 billion spread across 68 deals, against $1.29 billion spread across 45 deals in 2013, according to preliminary data collated by VCCEdge, the data research platform of VCCircle. In 2012, the sector sealed 60 transactions with an aggregate value of around $1.66 billion.
While the number of deals slipped below the 50 mark in 2013, it has crossed that mark this year and the value of deals has matched the amount pulled in by the sector from PE firms on an average in 2012 and 2011.
Notably, in the good old days of 2007-08, close to 100 deals were struck two years in succession worth $4-5 billion each.
The realty deal space, like last year, was dominated by buy-out transactions involving commercial assets. The biggest deal was sealed early this year when AIM-listed Unitech Corporate Parks (UCP) sold its majority stake in all of its half-a-dozen project JVs with Unitech to Brookfield Property Partners for £205.9 million (Rs 2,049 crore or $347 million).
In the buy-out space, Blackstone bought two IT parks from IDFC Alternatives for Rs 1,100 crore ($178 million).
Blackstone also sealed its pending deal (first talked about in 2013) along with its JV partner Embassy Group. The JV picked 60 per cent stake in Vrindavan TechVillage (VTV), a large business park in Bangalore, in a deal which valued the property at Rs 1,951 crore ($324 million), including debt.
At the fag end of the year Singapore's GIC struck a deal to buy 39 per cent in Nirlon, which owns an IT park in Mumbai, for around $110 million. It has also made an open offer which can push the deal vaalue to around $200 million.
On private equity investment side, while commercial real estate did not see much investment from private equity investors during the year, the residential side was on the radar of PE funds.
Some of the top deals on the residential side include Kohlberg Kravis Roberts (KKR) investing Rs 750 crore ($118 million) across two deals with Bhartiya Group in Bangalore and Wadhwa Group in Mumbai. Blackstone also opened its account on the residential side this year.
In another big ticket deal, Tata Opportunities Fund invested $80 million (Rs 468 crore) at company holding level in southern realtor Shriram Properties. Xander invested $65 million (Rs 400 crore) in a residential township project of Supertech in Gurgaon.
In an important land deal, Lodha Group acquired an 88-acre land parcel from Clariant Chemicals for $191 million. Another significant land deal was sealed between Parsvnath and Supertech where the former sold its 107-acre land parcel on Sohna Road in Gurgaon for roughly Rs 700 crore ($120 million).
Some other big ticket deals that can fructify in the next year include Blackstone buying two commercial assets of North-based developer 3C for roughly Rs 1,100 crore. Another deal which has been stuck for long is 1.12 million sq ft commercial property 247 Park located in Mumbai. Lotus Greens is understood to be in talks to raise roughly Rs 500 crore for its residential projects in Noida.
While most of the deals throughout the year were sealed through the debt route at special purpose vehicle (SPV) level, a new deal structure which became an instant favourite among deal makers was apartment bulk-buying. The deal structure allows fund managers to buy apartments in bulk at a deep discount and offload it through a mutually agreeable exit mechanism. Read here for more.
Funds announced, launched & raised
Better sentiments with the new government in place saw realty funds getting busy with blue prints for new funds. The second half of the year saw the launch of a slew of realty funds – both domestic and offshore –tapping into improving sentiment among limited partners (LPs). Some of the domestic funds launched include those by Indiabulls Asset Management, former chief of Piramal Fund Ramesh Jogani along with Centrum Finance, another domestic fund by former Indian realty team of Wells Fargo and a domestic fund by former chief of Essel Finance under Nisus Financial Services. ASK Group too came up with a domestic fund in the second half of the year.
Read here for the list of firms which have revived or launched offshore funds this year.
One interesting trend was the shift in strategy where some funds which were looking to launch commercial funds switched their plans.
Some of the realty firms which wrapped up funds or reached milestones in 2014 include Reliance AIF which hit first close of its maiden realty fund at $65 million (Rs 400 crore), Piramal Fund Management which raised $82 million in Indiareit apartment bulk buying fund and aims to wrap up by March 2015; ASK Group which hit first close of its maiden offshore fund at $50 million and Motilal Oswal Real Estate which raised Rs 440 crore ($71 million) for its second fund India Realty Excellence Fund II, which has a target size of Rs 500 crore including a green-shoe option of Rs 200 crore.
Early in the year, Kotak raised $400 million in its new offshore fund. Milestone Capital, which is raising its first fund after the demise of its founder, is inching towards first close at Rs 200-220 crore. Former chief of Essel Finance raised Rs 400 crore in its maiden fund to invest across bulk buying and debt deals. IDFC Alternatives also raised Rs 750 crore ($123 million) under IDFC Real Estate Yield Fund, its maiden domestic realty fund focused on the residential real estate segment.
New global funds get in through JV and managed accounts
The year also saw a bunch of global institutional investors tying up with Indian fund managers and developers through joint ventures and managed accounts for direct investment. Early in the year, The Xander Group collaborated with Dutch pension fund manager APG Asset Management for a $300 million (Rs 1,800 crore) venture that will buy income generating, institutional grade commercial assets across India’s main office markets.
In February this year, Piramal Enterprises Ltd and Canada's CPPIB joined hands to invest $250 million each in the residential real estate of India.
Singapore’s sovereign wealth fund GIC tied up with Bangalore-based Brigade Group to invest to invest ($247 million) in southern residential market. Separately, GIC formed two JVs with North based Vatika Group for residential projects.
This followed previous deals over the last two years where APG tied with Godrej Properties for a residential realty investment platform and CPPIB joined hands with Shapoorji Pallonji for buying commercial realty assets.
The year also saw a keen interest among investors for realty market of Bangalore which outpaced its bigger peers DelhiNCR and Mumbai Metropolitan Region in attracting deal flow. The IT city saw larger number of deals on the back of healthy sales volume and continued end user demand. See here for more.
Policy moves by government
On the policy side, the newly formed government announced a slew of actions to take care of the concerns of the realty sector. The biggest was the notification of the final set of guidelines for real estate investment trust (REITs) and easing of norms for foreign direct investment (FDI) in construction. Both these moves are aimed at attracting greater flow of capital from foreign investors.
The government has also given a major push to affordable housing to meet its target of house for all by 2022.