by Paul Joseph
May 30, 2010
Indiareit Fund Advisors, the Ajay Piramal group-promoted realty fund manger, was close to raising Rs 350 crore from high net worth individuals (HNIs) for its new property fund, said an executive. After doing so, it is setting its sights on raising a $250-million (Rs 1,100 crore) offshore fund, lined up for the next financial year. The Rs 350-crore fund raising will be the initial round of the mopping-up exercise for Indiareit Domestic Fund IV, which has a corpus of Rs 750 crore — with an initial target of Rs 500 crore and a greenshoe (over-allotment) option of Rs 250 crore. Indiareit is planning to close the fund within two months, Managing Director Ramesh Jogani told Business Standard. Indiareit’s fund raising could augur well for a host of Indian fund managers and developers, who are planning to raise funds worth nearly Rs 7,500 crore from domestic investors. While ICICI Venture is planning to launch Rs 1,000 crore over the next two to three weeks, Aditya Birla Financial Services is planning to close its Rs 1,000 crore fund by July. Domestic funds came back in fashion following subdued demand for realty investments in international markets. Even developers such as Unitech, Ackruti City and Shapoorji Pallonji are planning to raise realty funds to invest in their projects. Indiareit’s fund raising is the first such instance of a fund manager mobilising investments in the past four months, after IL&FS Milestone Fund-II raised money this January. “You can raise funds only if have a proven track record and good management team. I think we are the only (among a) few funds that have done exits in the investments we made,” said Jogani. Indiareit manages funds worth Rs 1,900 crore in two domestic funds and an international fund. Jogani said Indiareit was planning at least three to four exits in the current financial year. One of its investee firms, Neptune Developers, has already filed for an initial public offer. Though Indiareit’s fund got approval in November 2009, the fund started mobilising resources only in February. It plans to invest Rs 75-120 crore per project, in cities such as Delhi, Mumbai, Chennai, Pune and Bangalore. Jogani said the new fund has unique features such as “draw-down holiday” and “mortgage facility” to attract more investors. A draw-down holiday means if an investor puts in Rs 50 lakh and the fund draws money from him in five tranches, the investor gets the option to drop any one of the draw-downs. Similarly, the investor also gets 30 per cent mortgage facility from the fund after the payment of 50 per cent of the committed money. While he has to pay interest, the principal will be covered in the exit. According to Amit Goenka, national director of capital transactions at Knight Frank, at least Rs 5,000 crore of private equity funds will be deployed in Indian realty in the current financial year. “There is heavy pressure on the unused funds to deploy the money,’’ Goenka said. Adds Shashi Kumar C, head of real estate investment advisory at Aditya Birla Financial Services: “Rather than investing directly in real estate, investors can invest in funds and take exposure in properties across the country. They can also see what is going on in the fund every quarter,” he said.
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by Paul Joseph
May 30, 2010
In Chennai , buyers are not willing to settle for second-best in terms of location and quality of built-up space. Residents and visitors to Chennai cannot help but wonder at the number of ‘to let’ boards on commercial buildings. A ‘to let’ board is often the last resort of an owner, says a broker. An owner of a few thousand square feet of retail space sits in his basement shop in a shopping complex on G. N. Chetty Road, just off the prime shopping location T’Nagar. He wants to let the place out. There are many enquiries from people wanting to set up an eatery here but this place does not have water supply or drainage connection. Other retailers are not keen on this location, says the owner. There is more to ‘to let’ boards than just “slowdown”, say real estate professionals. There is demand for quality office and retail space. Enquiries are picking up and transactions are happening in non-IT office space and retail space, but quality and location hold the key. For retail space it is not as if there is no demand, but retailers are now a lot more choosy when it comes to setting up shop, says Mr Abdur Ravoof, President, Chennai Real Estate Agents Association (CREAA). The euphoria of a few years back, when shopkeepers confidently settled for any place outside or close to prime shopping areas, has gone. No longer do they settle for the second-best location. That explains the number of ‘to let’ boards across the city, he says. Retailers are no longer willing to take the risk — to them the top three conditions are “location, location, location.” Prime shopping areas in the city continue to be T’Nagar, Anna Nagar, Purasawakkam and parts of Adyar, where demand outstrips supply. But in areas adjacent to these localities where retail space was created when the market mood was on a high you will find large vacant areas, he points out. In the peak period prior to 2008 such retail space spilled out into the ‘non-prime areas’ — for instance in T’Nagar even the residential areas and by-lanes were being taken over by shopping space. It is those locations that are vacant. Similarly, for restaurant space, there is one enquiry almost every day, says Mr Ravoof. But the key is ‘ideal location’ and that is not available. Mr Jayant Hemdev, Business Director, Hemdev’s International Realty Services, says there is demand for prime retail locations. There is simply no free space. Except for a handful of malls there is no ‘standalone,’ quality retail space in the city. For office space, enquiries are resuming and again quality is the key. Here the main issues are car park space, connectivity and maintenance charges, he says. For grade–A space in Chennai, as available on R.K. Salai for instance, the monthly lease rates are Rs 50-60 a sq.ft. The next slab fetches Rs 35-45 depending on the locality and building quality. Hemdev’s International has handled significant volumes in the last one month for office space and the market in general has seen over one lakh sq.ft of space being taken up, he says. Transaction sizes range from 25,000 sq.ft to lots of 5,000-10,000 sq.ft. The point is that apart from IT buildings, there is not much supply of quality office space for others. So, though there is a drop of about 20 per cent in lease rates as compared to peak periods, demand continues to outstrip supply. Mr Hemdev said that on Anna Salai, the new office space developed by ETA Star is being sold at about Rs 10,000 a sq.ft and even second sales at Raheja Towers attracts about Rs 7,000 a sq.ft. The new space will hit the market about two years from now. Demand for office space is from a wide range of sectors, including automobiles, engineering, chemicals and pharmaceuticals, says Mr Hemdev. Industrial development on the periphery of the city is happening up to over 100 km and that is spurring office space demand in the city, he says. There is nearly 25 lakh sq.ft of non-IT office space in the market, estimates Mr Ravoof. The lease rates average Rs 22-60 a sq.ft per month. The key locations are Nungambakkam, Adayar, T’Nagar, Anna Nagar and parts of Anna Salai from Teynampet to Guindy. Rail connectivity is the key, he says.
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