Godrej Properties Ltd (GPL), the real estate arm of the Godrej group, said on Monday it had created a Rs 770-crore development fund with a clutch of global investors, including Dutch pension services provider APG and Sparinvest Property Fund II, to develop residential properties in India.
The fund will invest and develop three to five mid-segment residential properties in Mumbai, National Capital Region (NCR) and Bangalore, apart from looking for opportunities in other cities such as Pune and Chennai.
GPL would bring in 29 per cent equity and the rest would be brought by investors. Both parties would also share profit in the same ratio, the company said in a statement. GPL will also get a development fee as the developer of the projects. The percentage or exact fee to be paid was not disclosed, but analysts say it is normally 10 to 11 per cent of revenue.
Macquarie was the advisor in the deal.
The move would help GPL, which focuses mainly on joint ventures and joint development, to go for more outright purchase of land parcels. “The platform will enable GPL to capture outright land purchase transactions in the current dislocated market conditions without deviating from its asset light model and is expected to generate substantial earnings over the next seven years, which will contribute significantly to the company’s growth,” GPL stated in the statement.
Pirojsha Godrej, managing director and chief executive of GPL, said, “We are excited about this association with a global investor group led by APG, which will enable GPL to source deals with large capital requirements in our focus markets of Mumbai, NCR and Bangalore.”
“Basically, they do not need to lock much of capital. Apart from sharing profit, they will also get a management fee,” said Akshit Shah, research analyst with SBICAP Securities.
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Though the company had recently raised Rs 470 crore and reduced its debt to equity levels to 1.06 times, some analysts have concerns about its debt-equity ratio. Pirojsha Godrej had recently told this paper it did not have problems in raising funds. “Gearing is one thing, but if you look at our total debt on the books and the number of projects we are undertaking, we are at a comfortable level,” he had said.
Shah said joint ventures with PE funds were helping developers to access funds at a time when debt was becoming expensive and sales were down in markets such as Mumbai.
Last December, Peninsula Land, a part of city-based Ashok Piramal group, entered into a 50:50 joint venture with Canada-based Brookfield Asset Management to launch a real estate fund for investments in tier-I cities. But such funds have had a chequered history in India. The Rs 250-crore fund planned by Ackruti City in partnership with Pacifica and Beekman Helix is yet to take off even after a year. Similarly, the Rs 300-crore Mumbai Redevelopment Fund-I, launched by CIG Realty Funds (an asset management company floated by Unitech promoters) last April, is yet to close.
Macquarie Capital (India) Pvt Ltd was the sole financial advisor for the transaction. Shares in GPL ended the day at Rs 522.90 — 0.9 per cent down from Friday’s close.