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| Realty funds compete on terms for investors |
| Raghavendra Kamath / Mumbai Jun 30, 2010, 00:57 IST |
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Sweeteners, liquidity buffers dangled to get over uncertainty.
With fund raising activity picking up, property fund managers are offering easier and flexible options to investors to garner higher interest in their funds.
Over Rs 7,000 crore of new fund raising has been lined up by fund managers and real estate companies in the current financial year and most are targeting the same set of investors, which includes high net worth individuals (HNIs) and financial institutions. Investors stayed away from property investments during the 2008-09 slowdown, as home sales and prices dwindled across the globe.
This and the need to provide liquidity cushion to investors amid uncertain markets is making fund managers offer attractive terms. For instance, Indiareit Fund Advisors, promoted by the Ajay Piramal group, has promised a ‘draw-down holiday’ and ‘mortgage facility’ in its Rs 750-crore Indiareit Domestic Fund IV. The fund manager raised Rs 400 crore early this month from HNIs and others.
Sweeteners
A ‘draw-down holiday’ means if an investor puts in Rs 50 lakh in a fund and the fund draws money from him in five tranches, the investor gets the option to drop any one of the draw-downs, if he chooses. For starters, funds get commitments from their investors and draw funds from them whenever they require.
In case of ‘mortgage facility,’ an investor gets a 30 per cent loan from the fund after the payment of half the committed money. While he has to pay interest, the principal will be covered in the exit. “Investors need to commit and pay over a three-year horizon. So, in case of liquidity problems, they can skip one commitment and remain invested. Both options are aimed at providing flexibility for investors,’’ said Jasmeet Chhabra, Director, Investments, Indiareit.
The fund manager is also planning to launch a project-specific fund next year that will give opportunity for investors to buy apartments in that project at a discount. Investors will be allotted units which will entitle them to apartments in the project from Indiareit’s investment in it.
Indiareit isn’t alone in coming out with such terms. The ASK Group last year gave a ‘liquidity window’ for investors in its real estate fund, wherein the investors could sell back 10 per cent of their holdings to the fund manager after three years. “Unlike equities, real estate is highly illiquid, but less volatile. Hence, we decided to provide liquidity to investors,” said Sunil Rohokale, executive director, ASK Investment Holdings.
Competing offers
Though ICICI Venture, the venture capital arm of ICICI Bank, does not plan to offer such options, it has decided to scale down the ticket-size of investments in it’s to-be-launched Rs 1,000-crore domestic fund. The fund manager is looking at investing around Rs 50-100 crore from its new fund, compared to the Rs 300-400 crore it used to invest from its earlier funds. It has also reduced the life of funds from seven-eight years earlier to five years now.
“We want to invest in smaller projects, as exits there can be faster and investors’ money can be returned quickly. We want to make the product (fund) simpler for investors,’’ says Sanjeev Dasgupta, president, real estate, ICICI Venture.
To evince higher interest from investors, fund managers such as Indiareit, ICICI Venture and Aditya Birla Financial Services, among others, have kept the minimum threshold at Rs 25 lakh. During the boom period of 2004-08, most funds used to have a minimum threshold of Rs 50 lakh, investment advisors say. “There is competition. Investors have to make a decision about whom to back,” said Dasgupta, about the fund raising.
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