Exclusive: PE deals in Indian real estate headed for a slowdown in 2016?

Reeling under a slowdown in the real estate space, private equity funds appear to have adopted a cautious approach. The number of PE deals in 2016 are headed for a three-year low.

According to data provided by VCC Edge, so far in 2016 there have been only 26 deals amounting to a total $447.1 million, led by a Blackstone investing  $70 million Salarpuria Sattva Group to fund the Bangalore-based realty firm’s ongoing office park project in Hyderabad’s Knowledge City.

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Data from VCCEdge

Private equity funds were most active in 2014 and 2015 when there were 98 and 91 deals reported respectively. By deal size also, the two years were most robust as compared to 61 deals of a total $1.28 billion in 2013. While in 2014 the 98 deals amounted to $2.27 billion, in 2015 it was at $2.72 billion, the data showed.

Last year also saw big ticket investments in the sector, which is now witnessing a slowdown, with the largest being Singapore’s sovereign fund GIC Pte Ltd investing $299 million in two projects of DLF Home Developers Ltd. During the year Piramal Realty Pvt Ltd also attracted PE investment in two of its projects, including  $150 million from Goldman Sachs Whitehall Real Estate Fund and $284.34 million from Warburg Pincus India Pvt Ltd for another project.

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Data from VCCEdge

In the first quarter of 2015, foreign funds continued to dominate the investments in the real estate sector in India.  Out of total investment volume in the January-March period in 2016, nearly 58 per cent share was held by the foreign funds at Rs 22.1 billion ($332.0 million) worth of investments, compared to domestic funds which accounted for 42 per cent share at INR 16.3 billion (USD 245.0 million) owing to large ticket size deals, as per a recent report by global real estate consultancy firm Cushman & Wakefield.

Domestic funds have continued to invest and focus primarily in residential asset class, as developers raised funds to meet their growing funding needs of working capital, construction financing and refinancing of loans,” Commenting on the report, Sanjay Dutt, Managing Director, India, Cushman & Wakefield said while commenting on the report.

“Large foreign PE funds such as Blackstone, GIC and Xander to name a few have been diversifying their investment portfolio in India and have been increasing their exposure to retail, mixed-use and hospitality sectors as well apart from investing in commercial and residential sector. This could be attributed to several opportunities arising across India wherein developers have been trying to raise capital by monetizing their distressed or non-core assets to reduce the high debt levels,” he added.

During the first three months of 2016, after three consecutive quarters of robust private equity investment activity, the investment volume declined by nearly half from the preceding quarter to Rs 38.4 billion ($577.0 million). However, this was higher by about 40 per cent over the corresponding quarter of the previous year, as per the Cushman & Wakefield data.

The total number of deals closed during the quarter declined by 42% to 17 from 29 in the quarter ago. However, the quantum of decline in average deal size was less – falling by 12% from the preceding quarter to INR 2.3 bn (USD 34.0 mn).

During the first quarter, commercial office asset class accounted for 12 per cent share in total PE investment volume during the quarter. This was a significant decline of over 75 per cent from the previous quarter, as only one deal was concluded during the quarter.

While saying that 2016 directionally looked slower than the previous years, Ajay Garg, Managing Director, Equirus Capital said, “The commercial segment which was attracting a large chunk of the private equity segment, that has gone a little bit slow, because of the fact that prices have really gone up across the country.”

Cushman & Wakefield in its report, however adds that PE investment in commercial office sector is likely to in the next few quarters as some of the prominent real estate developers have been exploring options to sell either part or full stakes in some of the pre-leased office assets to prominent foreign PE funds in order to raise capital.

Also Read:

PE investments in India’s real estate touch $2.8b in January-September: Cushman & Wakefield

Blackstone invests $70m in Salarpuria’s realty project in Hyderabad

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.