DivyaSree Developers, one of the largest privately-held realtors in south India, is set to raise $150 million (Rs 900 crore) through the private equity (PE) route by bringing as much as 7 million sq ft of its leased out office space under one umbrella. The realtor, in which TPG-Axon had made a $100 million investment at the enterprise level during 2007, is understood to be close to signing the mandate to Standard Chartered Bank for the fund raise.
Bhaskar Raju, managing director of DivyaSree Developers, confirmed to Business Standard that the company is finalising its plans to raise about Rs 900 crore at its commercial development arm, but are yet to arrive at a structure. "We should be finalising the contours of the transaction pretty soon as there is high interest for rental-yielding commercial properties in India," he added.
According to information available, DivyaSree Developers has an annual rental income of about Rs 300 crore even as it adds another 3 million sq ft of office space. Investment bankers in the know told Business Standard that DivyaSree Developers is under a debt of close to Rs 1,000 crore and part of the proceeds from the fresh transaction will be used to pare that. DivyaSree Developers has in the recent past embarked on an aggressive expansion in the residential segment and it is currently in the process of rolling out 3 million sq ft of built-up space.
The move by DivyaSree to unlock value at its rental yielding arm comes after a slew of similar deals. In the recent past, the commercial real estate market in south India has witnessed landmark transactions involving global private equity majors such as Blackstone, Barings Private Equity, Qatar Investment Fund, and Xander Group making significant bets. Embassy Developers, RMZ Developers, Mantri Developers, etc have leveraged this high interest from global PE majors to go on a expansion spree.
Industry analysts indicated that PE investments in real estate saw investments of Rs 2,800 crore during the first quarter of 2014, witnessing an increase of 28 per cent compared to the previous quarter and 2.5 times the investment in the first quarter of 2013. According to global real estate consultancy Cushman & Wakefield, this healthy increase was due to increasing investments in leased office assets by both foreign and domestic funds, given the potential of stable yields and attractive capital values in the asset class.
Sanjay Dutt, executive managing director (South Asia) at Cushman & Wakefield, said: "A number of funds have committed funds towards investments in Indian real estate and this is expected to translate into increasing transactions in the sector, especially in income-yielding assets. With expected growth in capital requirements, we see a number of fund houses raising additional capital to invest in the sector." He added the investments in real estate by domestic companies have witnessed a significant increase during the first quarter of the year. "This was due to companies acquiring land and office assets required to execute growth strategies ahead of the anticipated recovery of the economy," explained Dutt.
Investor interest in the commercial office sector has been steadily increasing with investments doubling in the first quarter of 2014 from that of 2013 (Rs 700 crore). Healthy valuations of commercial developments, stable yields, and the potential of rising capital values have led to investors actively evaluating and investing in prime office assets across the top cities. Bangalore witnessed the highest level of transaction activity in the first quarter of 2014 with investments of Rs 1,905 crore ($312 million), an increase of 45 per cent compared to the previous quarter.