Anand Rathi-Knight Frank India fund raises Rs 220 cr

Anand Rathi Financial Services has completed the first round of fund-raising for the realty fund it has set up with Knight Frank India Pvt Ltd, collecting about Rs 220 crore. The fund, Rental Yield and Appreciation Portfolio (RYAP), aims to raise Rs 350 crore, with a greenshoe option of Rs 100 crore.

Launched in September, RYAP is set to invest about Rs 120 crore to buy two prime commercial office spaces in central Mumbai this month. The talks are in final stages. The deal size is about Rs 250 crore. According to fund officials, investors will invest the rest after buying a part of the space.

Amit Goenka, national director, capital transactions, Knight Frank India, said, “Instead of typical developing funds, which invest in under-construction properties, ours is a stabilised asset fund. We invest in Grade A commercial assets, which can ensure 10-12 per cent return immediately, which we share with investors on a quarterly basis. Here, both risk and returns are low.”

The rental yield-based fund will hold the properties for four-five years. The fund will invest in properties leased to blue-chip Indian or global enterprises for offices in Mumbai, Pune, Bangalore, National Capital Region (NCR) and Chennai. The fund targets 15 per cent rental income growth every three years.

According to a Knight Frank analysis, during April-August in 2009, 54 sale and lease transactions were concluded around Mumbai. This rose to 96 in September 2009-February 2010 and involved about 4.5 million sq ft commercial space. “This 78 per cent increase in volumes is not seen as a one-off event but a possible sustainable growth story over the coming years,” Goenka said.

The development portfolio returns are linked with completion and sale of properties and their risk-reward ratio is skewed due to the long lock-in, exposure to more than one economic cycle and multiple risks. Citing reasons for launching a rental yield portfolio, Goenka said these provided a regular income stream, which was used to pay dividend and interest to investors.

According to the Cushman & Wakefield India Real Estate Investment report 2010, the pan India office space demand over the next five years (2010–14) is estimated to be approximately 240 million sq ft. Bangalore, NCR and Mumbai will account for 46 per cent of this demand.

Manish Aggarwal, executive director, investment services, Cushman & Wakefield India, said, “The overall demand for commercial office space is subdued in comparison to supply, which is estimated to be approximately 400 million sq ft during 2010 to 2014, implying caution and the need for quality supply at right prices.” Mumbai is likely to witness the highest addition during the period, with 60.7 million sq ft office space likely to get operational by 2014, according to the report.

Private equity (PE) major ICICI Venture is in talks with domestic investors to raise about Rs 1,000 crore for its real estate fund. Baring Private Equity Partners is also exploring potential in real estate and is likely to start investing from its $650-million Baring India Private Equity Fund III in the next six months.

This year, PE players have almost doubled investment in real estate to $1,180 million from $600 million in 2009.

The industry also witnessed major consolidation, such as IL&FS Investment Managers’ acquisition of Saffron Asset Advisors and Religare Enterprises’ proposed buyout of Indiareit Fund Advisors. In one of the largest deals in 2010, IL&FS Milestone, the joint venture between IL&FS Investment Managers Ltd and Milestone Capital Advisors, bought 74 per cent in a Mumbai-based property developed by HCC Real Estate Ltd for Rs 575 crore.