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Reliance AIF floats new fund to tap into office real estate segment

31 January, 2017

Reliance AIF Asset Management Company Ltd, part of Reliance Nippon Life Asset Management Ltd, has floated a new real estate-focused fund with a target corpus of Rs 1,000 crore ($147 million).

The fund will invest in rent-generating commercial assets, marking its first move in the segment, the Mint newspaper reported, citing a senior company executive.

“There are no development risks attached to owning and leasing out Grade A commercial office assets. This is a large and growing asset class and there are enough opportunities,” said Shahzad Madon, head of portfolio management services and alternative assets at Reliance Nippon Life.

Madon said this asset class offers periodic rental income typically higher than that generated on bonds, along with significant potential for capital appreciation on exits. “This is an opportune time for capturing potential upside on office assets,” he said.

The asset management company already has two funds to focus on residential real estate. The second fund was launched in 2015 with a target corpus of Rs 1,000 crore. 

The new fund for office projects aims to invest in high-quality assets across key markets of India. Christened as Reliance Rental Yield Fund, the fund will tap into both domestic and offshore investors to scoop up capital.

The fund aims to clock a rental yield of 7.5-8.25% a year and gross internal rate of return of 12-16% at the fund level. It has a tenure of four to six years.

Reliance, across its AIF and portfolio management services, has raised Rs 2,600 crore for real estate investments and has returned around Rs 1,600 crore from 54 investments done so far, according to the Mint report.

The new fund comes at a time when demand for office space in top markets has sustained, even though the broader real estate sector has struggled due to a prolonged slowdown in the residential segment.

Consultancy Colliers International said in a recent report that leasing activity for office space is likely to pick up and vacancies are set to decline in prime commercial corridors on the back of rising demand momentum, especially in Bengaluru, Pune and Hyderabad. 

Given the opportunity, a host of fund managers have put together plans to float funds for commercial assets. Recently, VCCircle reported that Kotak Realty was planning to float a commercial realty-focused fund. Non-banking finance companies including Xander Finance, Piramal Fund Management and Altico Capital have also added office assets to their investment strategy.

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Reliance AIF floats new fund to tap into office real estate segment

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