Domestic realty funds launch stressed funds to tap stalled projects

With very low sales and financing from banks and NBFCs drying up, fund managers expect good returns from their investments, experts said

Eyeing the opportunity presented by stalled real estate projects and cash-starved developers, domestic fund managers are launching new stressed asset instruments.

Following the ‘Special Window for Completion of Construction of Affordable and Mid Income Housing’ or SWAMIH Investment Fund by SBI Cap ventures, Ahmedabad-based Lumos Alternate Investment Advisors, as well as Mumbai-based Nisus Finance, have come up with funds for stressed real estate assets.

When sales are paltry and financing from banks/NBFCs is hard to come by, fund managers expect good returns on their investments, said experts.

Lumos has partnered with prominent developers for its maiden Rs 300-crore fund. The proposed fund will focus on last-mile funding and acquisition of stressed residential and commercial projects in six major cities — with an investment ticket size of Rs 40 crore per transaction. The firm was set up by Anuranjan Mohnot — earlier CEO of Amplus Capital Advisors (part of Arvind group). “Acquisition of stressed assets being more of an operational play, real estate developers will — as operating partners — provide a unique win-win investment opportunity to investors where operational risk is mitigated through active participation,” said Mohnot.

Mohnot said it would improve visibility of financial closure, execution, and exits. The operating partners will invest in the fund and projects to have proper skin in the game.

Nisus has received commitments from investors for a Rs 500-crore fund, to invest in distressed assets stuck with NBFCs and projects that need last-mile funding, said MD and CEO Amit Goenka.

“We are looking at projects that are stuck because of lack of funding or where the management is weak,” said Goenka.

Goenka added they are curating a portfolio of stressed commercial assets worth Rs 200-300 crore. “Many such assets have come to us in April and May. Rents are under pressure and many LRD (lease rental discounting) projects have sought refinancing,” he said. 

Vishal Srivastava, president (corporate finance) of Anarock Capital, said in a recent note that stalled projects need a new source of last-mile funding. “If they get it, the developer will be ready to pay a premium for completing the project with incremental capital, while the NBFC can recover its dues and ease its balance sheet. Buyers will get their flats, and more buyers will line up to buy completed units,” said Srivastava.

According to Srivastava, there are various foreign funds with visibility above Rs 35,000 crore, besides the Rs 25,000-crore SWAMIH fund. A large slice of this pie — around 60 per cent — is from US-based funds, followed by 31 per cent from Asia (excluding India), 6 per cent from India, and 3 per cent from Europe-based funds.

This capital is being raised for projects primarily in Noida, Greater Noida, and Gurugram in NCR, Mumbai and Thane in MMR, along with Bengaluru, Hyderabad, and Pune. The projects in question have 100-800 units, with ticket sizes ranging from Rs 28 lakh in Noida to Rs 15 crore in Mumbai, he said. Existing funds of Motilal Oswal are also looking to invest in stalled projects.

“We are looking at last-mile deals for projects that could lead to completion with our capital and buying out loans of viable projects,” said Sharad Mittal, CEO of Motilal Oswal Real Estate.