Lemon Tree, Warburg set to form realty JV

Warburg may invest more in another asset firm.

Warburg Pincus, the private equity major, is set to enter an equal joint venture with Patu Keswani’s Lemon Tree Hotels to get into affordable housing. It may see the two infuse $100 million (Rs 455 crore) in the first phase, and more subsequently, said a person familiar with the deal. This will go into a foreign direct investment-compliant, Rs 1,500-crore realty project.

Warburg doesn’t usually comment on its investments in India, and didn’t want to answer specific questions on the deal. As for Keswani, the maverick hotelier —who has adopted 25 stray dogs in 15 of his hotels, employs 70 deaf-mute people and encourages his staff to dress informally and sport ponytails — has been in talks with the PE major for his real estate foray.

Keswani is slated to meet a senior team from Warburg in Delhi in the first week of February to take the deal forward. ‘‘The term sheets have come... The deal is done, but not signed,’’ said a person familiar with the development. Warburg is already an investor in Lemon Tree Hotels, which has grown at a scorching pace and created a niche for itself as an upscale, moderately-priced hotel chain. While Keswani being in talks with Warburg, he refused to discuss the details.

Warburg is likely to invest around $50 million (Rs 225 crore) and pick up a little less than 50 per cent stake in its real estate joint venture with Lemon Tree Hotels, while Keswani is expected to put in $51 million for a little over 50 per cent stake in the real estate company.

At the next stage, Warburg may put in $100 million in an asset company that will be 100-per cent owned by it. The real estate company and the asset company will jointly invest in special purpose vehicles to promote real estate projects in Gurgaon. Warburg and Lemon Tree are looking at this structure since real estate is highly capital-intensive. More important, this would help Keswani control 51 per cent in the real estate firm by investing $51 million, a quarter of the funds the two are bringing.

Lemon Tree is foraying into affordable housing and plans to sell two-bedroom and three-bedroom apartments for Rs 50-75 lakh in Gurgaon that will be 20 per cent cheaper than the market, with the deals offering greater transparency. Keswani, for instance, plans to sell on a carpet area basis, minus the other charges that have become a norm in the National Capital Region.

Keswani doesn’t feel his real estate foray will stretch his resources. ‘‘As a hotelier, I was one of the largest developers in the last few years. I have a 150-strong project management team of civil engineers, supervisors and an architect. This will be spun off into a real estate company, which will be 100-per cent FDI compliant,’’ he said.

“The firm is bound by internal operational policies, which do not allow discussion of its investment activities in India. The firm is unable to share any perspectives on this matter,’’ said a Warburg Pincus spokesman.