Post sub-prime, US realty PE funds eye Indian market

The sub-prime market crash in the US may have shaken up the US realty PE funds, but they are finding their feet in the Indian realty market.

With a booming real estate industry providing enough profitable avenues, these funds have started exploring the possibilities of joining hands with Indian developers.

Leading realty player Parsvnath Developers is in talks with a number of US-based PE funds. "The booming Indian realty market is offering the US realty PE players better opportunities. Apart from HDFC Bank and Kotak group, there are hardly any domestic players in this space," said Sanjeev Jain, Managing Director, Parsvnath Developers.

Pune-based real estate company Kolte-Patil Developers Ltd, which plans to raise Rs 276 crore from the capital market, is another such player.

The real estate company is eyeing tie-ups with leading US-based real estate private equity funds for its FDI qualified projects through special purpose vehicles (SPVs).

"After burning their fingers in the recent sub-prime market crash, US realty funds are now finding the booming Indian realty market lucrative and gradually to the interest to invest in projects have risen," says Hardeep Dayal, Group CEO, Kolte-Patil Developers Ltd.

The company is in talks with three US realty funds for floating special purpose vehicles for its future projects.

Operating predominantly in Pune and Bangalore, the company has also identified projects like IT parks, commercial and residential complexes, service apartments and integrated townships in other cities like Hyderabad and Chennai.

With already 28 ongoing projects on a land bank of 21.58 million sq ft of saleable area, Kolte-Patil has also applied for land acquisition rights to generate an additional land bank of 17.80 million sq ft.

To fund the that FDI doesn't cover, the company is raising funds from the capital market through an IPO of 1,90,00,836 equity shares of Rs 10 each at a price band fixed between Rs 125 and Rs 145 per equity share, apart from entering into joint ventures with real estate PE funds like ICICI Venture Fund Management Company Ltd. and Yatra Capital Ltd.

With residential projects forming 60-70 per cent of its portfolio, Kolte-Patil operates in the mid market segment with 80 per cent of its residential properties priced between Rs 2,200 per sq ft and Rs 3,500 per sq ft.

The rest of the upper-mid projects priced around Rs 4,000 per sq ft to Rs 6,000 per sq ft.

Refusing to disclose the amount of FDI being poured into some of its projects, he said, "Some of our projects are not FDI qualified but for the rest we are in talks with 3-4 US-based realty funds to form special vehicle purposes. The nature of the project would be decided later on once the deals are finalised."

Companies such as AlphaGCorp, a real estate developer have seen a marked increase in the number of queries from US PE funds.

"Though we are not exploring this option at the moment, the number of queries has shot up after the sub-prime crash," said S K Sayal, CEO and Director of AlphaGCorp.