Motilal Oswal Real Estate raises Rs 5.75 bn for fourth realty fund

Fund's first investment likely in September; proceeds will be used finance projects taken over by large, organised realty players from smaller developers

Motilal Oswal Real Estate (MORE) has made the first close of India Realty Excellence Fund IV (IREF IV), its fourth real estate fund, raising commitments aggregating to Rs 5.75 billion. 

MORE is part of Motilal Oswal Private Equity (MOPE), which is the alternative investments platform of Motilal Oswal Group. MOPE's total assets under management exceed Rs 50 billion.

IREF IV’s strategy would be an extension of those of MORE’s earlier two funds (IREF II and IREF III).  

Sharad Mittal, Director & CEO, MORE, said that the fund has raised Rs 5.75 billion for the fund within three months of launch. "In this fund, we have also witnessed repeat commitments from many existing investors from our previous funds," he added.

The money raised for the fourth real estate fund came from high net worth individuals (HNIs) and family offices. The Fund is set up as an alternative investment fund (AIF Category II).

"Government policies such as PMAY and introduction of a regulator (RERA) are gradually playing out across all major cities of India indicating early signs of a recovery in residential real estate. Nearly 75 per cent of the new units launched are priced under Rs 7.5 million, while apartment sizes over the years have fallen by over 12 per cent, showing the developer’s affinity towards affordable housing," Mittal said. "While sales are showing modest improvement, prices in all major cities are still stagnant or trending downwards, as developers strive to address inventory overhang. All these factors indicate early signs of a volume-based recovery in residential real estate.”

He added that consolidation has emerged as the dominant theme with large and organised players becoming clear beneficiaries of RERA. Under this strict regime, smaller developers have found the task of completing their stalled projects daunting. This has translated into a huge opportunity for larger players, as these small developers will eventually sell their projects at distressed valuations. "These are the opportunities where we believe our kind of capital will be required by the established players going forward," Mittal explained.

The fund plans to deploy the capital raised in mid-income/affordable residential projects across the top six cities in India, while selectively investing in commercial projects. 

IREF IV would focus on early-stage structured equity/structured debt investments with established developers and undertake 12-15 transactions of Rs 800 million to Rs 1.50 billion each.

MORE till date has invested capital in the real estate sector through three real estate funds and PMS/ Prop investments. The cumulative AUM under MORE currently stands at more than Rs 21 billion spread across IREF (Rs 2 billion), IREF II (Rs 5 billion), IREF III (Rs 10 billion) and balance under PMS/Prop Investments.

“We have a strong pipeline of deals for our fourth fund and plan to make our first investment in the month of September,” he added.

Vishal Tulsyan, CEO of MOPE, said “We have scaled up the real estate private equity business by more than 10 times in the past 5 years. We are very positive on this sector and investing in this segment shall continue to be our focus in the coming years”

MORE’s second fund, IREF II, which achieved its final close in 2015, has till date made 14 investments and secured seven complete exits at an investment level IRR of 22.1 per cent. 

The Fund has returned money equaling about 82 per cent of the Fund corpus back to its investors. IREF II has been the better performing funds amidst a tough real estate market.

MORE’s third fund, IREF III, which achieved its final close last year, has till date made 15 investments and secured 2 complete exits at an investment level IRR of 22.3 per cent. The Fund has returned money equaling ~25 per cent of the Investible Funds back to its investors.