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Kotak Realty joins the race to buy IL&FS India Realty Fund 1

LiveMint logoLiveMint 04-10-2017 Reghu Balakrishnan

Mumbai: Kotak Realty Fund has joined the race to buy IL&FS India Realty Fund I that manages real estate assets worth $525 million, two persons aware of the development said.

Kotak Realty Fund is part of Kotak Investment Advisors Ltd (KIAL), a wholly-owned subsidiary of Kotak Mahindra Bank Ltd, while IL&FS India Realty Fund I is owned by IL&FS Investment Managers Ltd (IIML), a unit of Infrastructure Leasing & Financial Services Ltd (IL&FS).

Kotak Realty is the second fund interested in the IL&FS fund. US-based global private equity firm The Blackstone Group Lp is already in talks to buy the fund, Mint reported in July.

A deal is likely to be struck around $200 million, one of the two persons said, both of whom spoke on condition of anonymity. One of India’s first real estate-focused funds, IL&FS India Realty Fund I, was launched in 2005. It has made about 17 investments, of which it has exited six. Its major investments include ETL Infrastructure Services Ltd ($48 million invested in 2006) and QVC Realty Ltd ($100 million invested in 2008).

Jones Lang LaSalle (JLL) India is advising IL&FS on the sale, the second person said.

“Both Blackstone and Kotak Realty have shown interest in the assets,” said the first person. However, it is not certain if any deal will materialize soon as discussions with limited partners (investors in the fund) are sltill in progress, he added.

IL&FS India Realty Fund II, with a corpus of $895 million, was raised in 2007 and has invested in 28 companies including Kohinoor CTNL Infrastructure Company Ltd and GK Industrial Park Pvt. Ltd.

The major portfolios of IL&FS real estate funds include Gurugram-based Ansal Esencia, Chennai-based Pacifica Aurum, Bengaluru-based Phoenix Market City and Bhartiya City, Mumbai-based Indiabulls Blu, Wadhwa Address, and Pune’s Amanora Towers.

A present, IIML has six real estate funds with about $2 billion under management and commitments aggregating $1.8 billion in 74 transactions across India. Several of IL&FS’ real estate funds are in exit mode—including the $117-million IL&FS Milestone Fund I and $103-million Saffron India Real Estate Fund I. Both were launched in 2008.

Mails sent to spokespersons at Kotak Realty went unanswered while an IL&FS spokesperson declined to comment.

Set up in 2005, Kotak Realty has raised $1.47 billion till date and has invested in 40 projects and financed over 65 million sq. ft of residential development and 6 million sq. ft of commercial development.

Kotak Realty Fund has generated exits of over $604 million and returned the principal amount in three out of four domestic funds—KIREF-I ($70 million, vintage 2006), KIREF IV & V ($74 million, vintage 2011), according to the company website.

Residential projects funded by Kotak Realty include Sunteck Signia Isles in BKC, Lodha Palava, Transcon Developers SRA (Slum Rehabilitation) Project in Mumbai and a project of Total Environment Building Systems (TE) in Bengaluru.

Commercial projects include Peepul Tree—an independent commercial park at Mumbai’s Goregaon that was acquired by Kotak in 2006 from the developer, K. Raheja Constructions, and exited from in 2010; 3C Group’s Green Boulevard project in Noida; and Phoenix Mills Ltd. In the hospitality space, Kotak Realty invested in Pride Hotels and Lemon Tree Hotels.

After a brief slump, private equity investments in real estate have been picking up since last year.

According to a 2016 report by JLL India, private equity investments in the Indian real estate sector in 2016 increased by 62% to Rs38,000 crore as compared to Rs23,500 crore in 2015, out of which Rs13,500 crore was invested through pure equity while the rest was through structured debt.

The year 2017 is expected to be one of fructification, when the results of all regulatory and policy initiatives taken in 2016 begin to take shape. Most key initiatives, such as the Real Estate (Regulation and Development) Act (RERA), the Goods & Services Tax (GST) and Real Estate Investment Trusts (REITs) are primarily aimed at improving transparency and boosting investor confidence in India’s real estate sector at large, said a June 2017 JLL India report.

“In anticipation of the first REIT listing in 2017, institutional investments in corporate real estate are likely to remain positive. Inflows into commercial office assets in 2017 are expected to rise above Rs20,000 crore ($3 billion), on the back of healthy investor interest in leased office assets,” said the report—Return of the Investor.

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