Real Estate PE Firms Locking In Deals Before Hitting Fundraising Trail

26 April, 2012

At a time when private equity funds are finding it difficult to raise money from investors, a few real estate-focused funds have tweaked their fundraising strategies to bring more visibility to future investments and thus win back the eroding confidence of investors and LPs. In what can be marked as a new trend, some realty-focused funds have started showcasing the deals which have been struck, although without formal term sheets, as proposed investments from the funds being raised.

Among those who have agreed on such deals is JPMorgan, which has locked in 3-4 deals before it set out to raise a $500 million fund. Sources privy to the development said, “It has locked transactions in Mumbai, Pune and Chennai before setting out to raise the offshore fund. The investments will happen when the fund closure happens.”

JPMorgan has also resized the fund to $350-400 million. An e-mail query earlier sent to JPMorgan did not elicit any response.

However, JPMorgan is not the only one to do so. All real estate-focussed private equity funds have seen a paradigm shift in terms of fundraising. Nearly all of them are now locking deals or signing MoUs to demonstrate their ability to raise funds.

The private equity wave of 2007-08 swept the real estate sector with close to $4.39 billion flowing into the realty segment. During that period, every foreign investor looked for a chunk of the Indian real estate and invested heavily in funds which had a story to narrate. But as times change, warming up to offshore investors has become a challenge for wealth managers.

According to Amit Goenka, national director for capital transactions at property consultants Knight Frank India, “Earlier, a few funds used to show their investors in which projects their money would go. But now, it has become more like a mandatory scenario to explain to the investors where the money will be invested. They want a clear investment rationale before they step in as liquidity is scarce.”

The format has, therefore, changed and now realty funds have to lock in projects before they can go ahead and dictate fundraising.

Another fund which plans to take its investors through the investment sites is Triangle Real Estate Fund II – a joint venture between India’s ICS Group and South Africa-based Old Mutual Group.

Deep Kantawala, CFO of Triangle Real Estate Fund, says, “We have zeroed in on 4-5 developments and we will be taking our investors to show the sites and the development plans before they invest with us.” TREF is eyeing $200 million for its retail-centric developments and plans to develop 4-5 large schemes across Mumbai, Bangalore, Pune and Chennai.

A senior director of a realty fund, who did not wish to be identified, said, “Raising money for realty funds have become very difficult and it becomes an incentive if you can show your investors where their money would be invested. Just showcasing returns on existing projects is not the only key to raise money in tough markets.”

At present realty funds are raising close to $5 billion through domestic and international markets.


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Real Estate PE Firms Locking In Deals Before Hitting Fundraising Trail

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