India's Essel launches $184m real estate fund
The private equity unit of India's Essel Financial Services is targeting INR5billion ($92 million) for its first real estate fund. It will invest in residential projects in large cities across the country.
India Asset Growth Fund-Series I is being raised from domestic investors and includes an option to raise a further INR5 billion. It is held and managed by Essel Finance Advisors & Managers, part of Essel Financial Services, which was recently licensed by the Securities and Exchange Board of India (SEBI).
So far the fund has raised around INR2 billion and has deployed nearly all of it. It has invested INR800 million in a project in Mumbai, INR400 million in a project in Chennai and INR600 million in a project in Gurgaon. It expects to raise the entire corpus in 3-4 months.
"There is huge demand for capital from developers," Amit Goenka, managing director and chief executive with Essel Financial Services told LiveMint. "But many of them are stuck with projects due to delayed approvals and financing issues".
He added that said the firm will offer last-mile funding to residential projects, largely in the form of debt financing. The fund is intended as an umbrella fund and is to be the first in a series of real estate funds that will be raised by the firm.
Banks have become wary of providing finance to the property sector, prompting developers to turn to private equity and other alternative sources of capital. PE firms, while keen to capitalize on the opportunity, are also cautious and have typically focused on residential projects, which have been more reliable than commercial developments.
Last-mile funding is also seen as a safe option for private equity because such projects would have come though the land acquisition stage and the risks associated with it.
Essel is not the only firm to see opportunities in India's property sector. The Blackstone Group is reportedly targeting $4 billion for its first Asian real estate fund, although the firm appears to have no inhibitions about commercial projects.
In February, Blackstone was said to have joined two other companies in purchasing a business park in South india for INR19.6 billion ($367 million), while last October it secured one of the largest commercial real estate deals in India to date, taking a 50% stake in a portfolio of three business parks for $200 million.
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