3i-backed Indiareit to raise $622 million

Indiareit Fund Advisors, a real estate venture capital fund backed by 3i Group, plans to raise about $622 million in three new funds that will invest in Indian property across major cities.

Indiareit plans to raise $400 million for an offshore fund, as well as a Rs 600-crore ($133 million) rental yield fund and a Rs 400-crore rupee domestic debt fund in the year starting April 1, Chief Executive Officer Ramesh Jogani said.

“India is a great place to be in, it’s a great story where demographics are right and gross domestic product is growing at eight per cent,” Mumbai-based Jogani said in an interview yesterday. “If you stick to the basics and do it right, I think it’s a great place to make a lot of money.”

Private-equity firms invested about $1.24 billion in 34 deals in India this year, according to a study by Venture Intelligence, a researcher based in Chennai. That’s a 69 per cent increase from the same period last year, with 22 investments valued at $735 million, it said.

Indiareit, started in 2006, advises on funds worth $850 million that invest in real estate in Mumbai, Chennai, Bangalore, Hyderabad and Pune. 3i, Europe’s largest publicly traded private-equity firm, was a cornerstone investor in Indiareit’s $200 million offshore fund, Jogani said.

Commercial real estate is picking up as rentals have risen and offered returns of 12 per cent, compared to residential property, which yielded between two to three per cent, he said. Mumbai is the fourth most expensive office market in the world, according to a CB Richard Ellis report last month, and New Delhi was ranked 11th.

‘Huge play’
“I see a huge play for investors and funds in commercial, though no one is ready to touch it with a barge pole as of now,” Jogani said. “I don’t see the oversupply in commercial continuing for long. The supply will be so quickly lapped up that one will feel they missed the boat.”

Jogani expects prices to “correct” in some housing markets such as Mumbai, Delhi and Pune. Indiareit invests in metropolitan cities with about 70 per cent invested in residential property and the rest in office space.

Indiareit is also introducing the new funds at a time when costs at real estate companies are expected to rise after a bribery probe that led to the arrests of eight bank and brokerage executives last month regarding preferential treatment to developers. Property companies may face higher borrowing costs and shrinking access to credit after the arrests, Ambit Capital said last month.