It’s not the best of times for real estate funds

Published: February 19, 2009

MUMBAI: It’s not the best of times for real estate funds. Given the slowdown in the sector, realty funds are going slow on raising money from their investors - a process that is referred to as the draw down option. Lack of  investment opportunity is cited as the prime reason.

Typically, a real estate fund works on a commitment from its investors on the amount to be raised. The fund collects 20-25 % of the committed amount right upfront. As and when investment opportunity crop up, funds asks investors asking for funds. Investors in normal practice get about a month to pay such draw downs. Real estate funds are close-ended for seven years and the money is raised from investors over three years.

With the slowdown in the real estate sector, funds are realizing that it has become difficult to get the right opportunities to deploy money. This has resulted in the slowing down in calling for draw downs from investors. Over the last 2-3 years, several funds like India REIT, Milestone Capital Advisors, HDFC and Kotak raised money from local as well as overseas investors. The ticket size for the domestic funds ranged from Rs 25 lakh to Rs 5 crore.

The Anand Jain-promoted Urban Infrastructure Fund, where the minimum ticket size was Rs 1 crore, closed its first fund in a year and a half. After the rights issue in May last, the fund has not exercised the draw down option. In the case of Kotak India Real Estate Fund, which was launched in July 2007 with a ticket size of Rs 5 crore, only 47% of the committed amount has been drawn down. “We have not asked for any money in the last nine months since we do not find any suitable investment opportunities,” said an official from the fund, who did not want to be quoted.

The case of India REIT is quite similar. It has two domestic funds with a corpus of Rs 430 crore and Rs 550 crore respectively. “Though we have completed the draw downs six months ago, only 75% of the funds have been deployed,” says Ramesh Jogani, managing director of India REIT advisors. The odd man out appears to be Milestone Capital Advisors, which thinks it is the right time to invest in real estate, since the model it follows is different from others. It has a 54-member team and believes in active management at all its investment.

Source: Economic Times

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