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Private equity firms exit real estate companies with good returns

Add comment   |   June 13, 2014    12:40am   |Contributed by Indian Realty News

BANGALORE/MUMBAI: At atime when the Indian property market is showing sluggishness, some private equity firms have exited their investments in real estate companies and locked in good returns too. Of the total institutional PE capital deployed until March 2014, nearly a fifth, amounting to $6.9 billion, has been exited by PE funds, according to a recent report by Brookfield Financial.

This is in contrast to the perception that private equity funds are stuck with their investments and are finding it difficult to make a profitable exit.

Some experts say this trend could get stronger. “Exits in India will accelerate into the second half of this year and next. I would expect that the renewed interest in India, along with a more pressing intent to exit among existing stakeholders, will lead to more volume of deals in the secondary market while residential projects which have matured will generate cash flows to provide investors with an exit,” said Sourav Goswami, principal-head of capital markets at Red Fort Capital, which has invested $1 billion with several successful exits.

According to Jones Lang LaSalle, a property consultancy, returns from Indian real estate for private equity investments with vintage of 2006 stand at 1.1 times compared with the global average of 0.86 times. Performance in the last six years is even better at 1.34x.

“India fares better compared with other property markets, irrespective of whether the exit has come through a third party or promoter buyback. The factor that matters the most is if the fund has derived good returns from its investment or not,” said Shobhit Agarwal, managing director at Capital Markets at JLL India. Depreciation in the rupee, delays in construction, weak economic conditions and sluggish property sales have restricted realty private equity offshore funds’ fresh capital raising efforts and also trapped their earlier investments. But with improvement in the scenario, the renewed confidence seems to be helping fund houses set more optimistic targets.

“With increased confidence among institutional investors and high net-worth individuals due to clarity in macro environment in the backdrop of a stable government, more profitable exits can be expected now,” said Rubi Arya, director and vice-chairman, Milestone Capital Advisors.

“We plan to return .`1,200 crore in this financial year to our investors, which includes about .`700 crore of capital.” Milestone Capital exited seven investments in 2013 with average returns of 22%. The fund has also made some partial exits since January this year.

According to Brookfield Financial, the residential sector accounted for over 58% of the exits and the office sector 24%. Besides, about 85% of the exits were through promoter buy-backs. Since 2005, $37 billion has been raised and deployed in the Indian real estate sector by institutional PE funds.

“PE interest have gone up and we will see the momentum picking up further in the next 2-3 quarters as market improves. Further definitive policy regime and lowering of interest rates will attract more foreign capital in the country,” said Rajeev Bairathi, executive director, capital transaction group and north India, Knight Frank India.

In the quarter to March, PE funds more than doubled their investment in India’s real estate sector on hopes of an improvement in the country’s economy. In the first quarter of 2014, PE funds invested.`2,800 crore in the country’s real estate sector, an increase of 2.3 times compared with the year-ago period, according property consultant Cushman & Wakefield.

By Sobia Khan & Kailash Babar, ET Bureau

News Published Under:   Bangalore, Mumbai, Real Estate India | No Comments »