ADIA to seek direct deals in India’s property sector
Abu Dhabi Investment Authority (ADIA) plans to make direct investments into Indian real estate rather than operate through third-party private equity and property fund managers.
The sovereign wealth fund is in the process of hiring a dedicated manager from a large private equity firm to run its India operations, Reuters reported, citing sources familiar with the matter. ADIA has so far invested $400-500 million in Indian real estate, predominantly through fund channels.
Most recently, it committed $50 million to Red Fort Capital's second India real estate fund, which closed at $500 million in January. Red Fort reportedly made its first investment through the vehicle last month, injecting INR1.5 billion ($30 million) into a residential project designed by developer 3C Company in New Delhi.
ADIA isn't the only sovereign wealth fund considering direct investments into the property sector, with Government of Singapore Investment Corp. (GIC) last October reportedly among the suitors for assets in central Mumbai held by textile firm Alok Industries. GIC is also said to be in talks with Godrej Properties, among others.
Indian real estate developers have been struggling amid a climate of low home sales and a tightening financing market as banks draw back from lending to the sector. Debt held by local developers reached INR1.8 trillion ($35.7 billion) as of September 2011, according to a report by Infrastructure Development Finance Corp. (IDFC).
At the same time, Indian property valuations are expected to take a hit as private equity investors on the fundraising trail rush to generate returns from their existing vehicles.
Shobhit Agarwal, managing director of property consultancy Jones Lang LaSalle's capital markets division, estimates that exits in 2012 could reach $3-5 billion, more than the cumulative historical total for India. Such a massive influx of supply would inevitably bring down average asking prices.
"The last 10 years counted 80 exits worth $3 billion, including some very large transactions," Agarwal told AVCJ last month. "This time $3 billion would mean close to 120-130 exits, generating less than $100 million per exit in many cases."
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