Kotak Realty Fund, a unit of Kotak Investment Advisors, is looking to acquire stressed loans with underlying real estate, with an aim to turn them around. This is at a time when the sector is passing through one of the worst phases of liquidity crunch.
For instance, it invested in a stalled 250,000-square feet commercial project ‘One Aerocity’ in Mumbai, being developed by a gold refiner. It paid back the lender and completed the project, going on to conduct strata sales, in which the property is sold in different pieces. Kotak fund invested around Rs 100 crore in buying the property.
Kotak fund also took over Marina Mall in Chennai, developed by the Allied Group. It had taken debt from public sector banks and was delayed by over 12 months. After Kotak’s Investment, the mall has been completed and is almost 100 per cent leased. It will be launched next month, said Chimakurthy.
Meanwhile, HDFC has put its plans to float a stressed property fund on the backburner, according to recent reports. “We got into stressed assets because we thought we could turn around those assets and target higher returns,” Chimakurthy said, adding that the fund manager is also looking at such deals at present.
He added that apart from commercial properties, Kotak fund is looking at such deals in residential properties provided it can address challenges pertaining to Rera (Real Estate Regulation & Development Act).
Several Property developers are reeling under huge debt they had taken to buy land parcels during the good years of real estate, but a host of policy decisions such as demonetisation, Rera, GST and the recent NBFC liquidity crisis have hit cash flows and funding routes of developers. Many of them are looking to sell the assets to generate cash, said fund managers.
“They (Kotak) must be looking to buy at a deep discount and reap at higher prices later, like what asset reconstruction companies do,” said Amit Goenka, managing director at Nisus Finance.
Kotak is investing out of managed accounts with the Abu Dhabi Investment Authority and Qatar Investment Authority. It also has a $50-million commitment from CDC for affordable housing.
Kotak Realty Fund is one of the country’s initial real estate PE funds, and has total capital commitments of $1.51 billion. It had invested in about 50 projects.