"We have aggressive plans and plan to have four funds of $1 billion or more for India. We want to be among the top retail developers in India by 2015 and one of the largest realty asset managers," said Colin Young, director, Old Mutual Investment Group Property Investments (OMIGPI), its real estate arm.
Old Mutual also has plans to float a real estate investment trust (REIT) that will raise money locally and invest in yield-bearing office assets. Subsequently, other core funds will buy properties developed by the offshore development funds.
OMIGPI, based in South Africa where it has developed many shopping centres, and Mumbai-based real estate firm ICS Realty, have floated their maiden $500 million property fund that will invest two-third of its corpus retail-centric real estate (in developing and managing shopping centres).
Triangle India Real Estate Fund, which was planning to raise $500 million and close by March 31, 2008, has managed to raise the seed capital of $125 million from Old Mutual, thanks to a difficult market.
"We have closed the fund and put the money to work. In the next 3-4 months, we should be able to get the balance commitment," said Deep Kanthawala, director of Property Zone, the advisor to the fund in India .
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"Everybody that we have spoken to believes in the structural story of India; we just have to go through their decision-making processes," said Young. Old Mutual has got a special dispensation from the Reserve Bank of India for investment provided the fund gets listed (the fund will be listed in South Africa by June 2008).
The fund has deployed $125 million for a 25 per cent stake in four super regional centres in Aurangabad, Indore, Nagpur and Jaipur being set up Prozone, a joint venture between retailer the Provogue group and Liberty International, a FTSE-listed company which runs six of the top 25 shopping centres in the UK.
Old Mutual is bullish on retail and is betting on tier-II and tier-III cities. "About 80 per cent of the middle-class consumers stay in these cities, where the penetration of organised retail is only 15 per cent. Here, people have the money to spend, but they are highly under-serviced by organised retail," said Kanthawala.
"In these cities, land is available at sensible prices, and we have the opportunity to build large compelling centres. We buy large parcels of land, and rope in big retailers to have their buy-in into the project," added Kanthawala. The presence of big retailers acts as a hedge against competing centres that may come up.
The second fund from Old Mutual is likely to be a Sharia-compliant fund, which will be focused on offices and residential. Old Mutual will also set up a REIT once the government puts in the guidelines in place in the next 12 months, which will access local money and buy yield-bearing assets which are ready.
Old Mutual and ICS Realty have also set up Pioneer Property Zone, a property development firm to develop and manage shopping centres. This firm will now work exclusively for Old Mutual's funds as its advisor in India.