PE boost for real estate!

Banks may be tightening their purse-strings for real estate companies, but private equity funds seem to be gearing up to inject the sector with a dose of capital.

According to sources, major realty PE players are currently raising fresh fund corpuses to invest into the sector, reports CNBC-TV18's Priyanka Ghosh.

Abhisheck Lodha, MD, Lodha Developers says, "We are committed to making sure all our investors exit in a timeline that has been agreed with them and at handsome returns. Previously with JP Morgan, HDFC Ventures, that has been the case with our company in this particular instance too."

Big ticket exits such as Deutsche Bank walking away with a 55% return from its five year investment in Lodha Developers has encouraged a series of private equity funds to tap off-shore investors and raise fresh fund corpuses.

Sources say, amongst them are big players such as HDFC Property, ICICI Ventures and Kotak Private Equity and newer entrants such as the ASK Group.

In the past one year, Shahpoorji Pallonji and Red Fort Capital are among those who have successfully raised 500 million dollar funds.

According to VC Circle, real estate funds are queuing up to raise as much as 5.3 billion dollars this year.

However, while fund managers may be gung-ho about raising fresh money, they are not willing to deploy funds in a hurry. Both 2010 and 2011 each saw only about one billion dollars being deployed in projects.

Sunil Rohokale, group CEO of ASK Group says, "Today, clearly a private equity investor is looking at cash flows and cash flow is coming from the execution."

So, this means, typically, funds are looking to invest in projects that cost consumers in the range of Rs 8,000-10,000 per square foot in Mumbai and Rs 4,000- 6,000 per square foot in other major metros for three-five years.

The good news is that private equity funds are optimistic about the real estate sector in the near-term despite the current low sales.

However, they still view the sector as a high risk one and therefore look for very high rate of returns, which means, developers do not get the money cheap. But given that companies are desperate to reduce debt, experts feel, fund raising through private equity will gain steam this year.

Source: http://www.moneycontrol.com/news/cnbc-tv18-comments/pe-boost-for-real-estate-_677298.html