Saffron to float Rs 300 crore domestic real estate fund

PRIVATE EQUITY WATCH

Saffron Asset Advisors, which manages investments of NYSE Euronext-listed real estate investment company Yatra Capital, is planning to raise a domestic realty fund of Rs 300 crore and a bouquet of offshore sector-specific funds in logistics, hospitality, health care, retirement homes and infrastructure.

The $150 million logistics fund will invest in warehouses, frozen houses, port capacity, airport cargo hubs and package houses across the country.

The fund manager is also planning a $100 million hospitality fund and $200 million-$ 250 million health care fund which will invest in the respective assets, said Ajoy Veer Kapoor, managing director, Saffron Asset Advisors.

"We want to become an end-to-end long-term fund management house for niche segments across the country. We believe in good operators, there is good liquidity available and are working in that direction. Within twelve months, we want Yatra to invest $1 billion in realty projects,'' Kapoor said.

Though Yatra has been investing in FDI-compliant realty projects in the country, Kapoor said they wanted to invest in alternative assets which did not fall in the FDI, in less than 25 acre properties.

The fund manger is hoping to invest anywhere between Rs 4,000 crore and Rs 5,000 crore in the next five years and is expecting 20-25 per cent returns.

In order to make foreign investments in real estate more stringent, government had introduced Press Note 2 for foreign direct investment (FDI), which stipulates a minimum of 10 hectares for housing plots and 50,000 sq metres for development projects.

Even in terms of investments for foreign firms, it stipulates $10 million for wholly-owned subsidiaries and $5 million for joint venture with Indian developers.

"For tier IV or V cities there is no need of malls of 1 million sq feet or half-a-million sq feet. Malls of 75,000 to one lakh sq feet will suffice. We are looking to invest these kind of projects. We are actively looking at cities including Agra, Bhavnagar, Vishakhapatnam, Nagpur apart from metros including Bangalore, Kolkata, Hyderabad since prices are overheated in Mumbai and Delhi,'' he said.

In December 2006, Yatra raised $100 million on the Amsterdam-based NYSE Euronext and invested the same in realty projects. Yatra also invested 3.73 million euros in The Phoenix Mills, thereby acquiring 0.88 per cent stake in the company.

Yatra is also raising $140 million in September from NYSE Euronext, which Kapoor is confident of investing in the 6-9 months. Yatra bought out Eredene Mauritius for 18.07 million euros from Eredene Capital PLC recently. Eredene had invested in realty projects in Indore, Nashik, Bangalore earlier with advice from Saffron.

Stagnancy in returns from property assets in western markets and better returns from Indian real estate have made many international investors including Goldman Sachs, Blackstone, Citigroup, Morgan Stanley to invest in Indian real estate. Indian entities including ICICI, HDFC and Kotak have also launched dedicated property funds.

According to industry estimates, as much as $2.5 to $3 billion has been committed by private equity funds to invest in Indian realty this year.