Amplus Capital Advisors Pvt. Ltd, part of the Lalbhai Group whose flagship company is Arvind Ltd, plans to raise its third real estate-focused fund which would offer structured debt financing to residential projects in top cities.
The firm will start raising the new Amplus Realty Fund—III around mid-October and plans to mop up between Rs200-250 crore.
The new fund will see Amplus stepping away from its two earlier, equity-focused funds—Amplus Realty Fund I and II—and focus on debt financing, with last-mile project financing comprising a significant part.
The new fund is opportunistic and significant in a post-RERA world, when realty firms cannot afford to defer delivery of homes and want to avoid the brunt of penalties owing to construction delays.
“There are many developers who are doing well, are asset rich but are facing temporary liquidity crunch. These are good opportunities for debt financing, particularly last-mile funding, where you can enter and exit within two-and-half years. We continue to do equity deals from our second fund, where good developers are still looking for equity capital,” said Anuranjan Mohnot, managing director at investment firm Amplus Capital Advisors Pvt. Ltd.
Amplus raised its first fund of Rs130 crore in 2013, made eight investments and has returned 80% of the money back to investors. For its second fund, raised in 2015-16, it raised Rs230 crore and has made a couple of investments in Ahmedabad and is in the process of investing in Chennai and looking at deals in Pune, Mohnot said.
In a post-RERA or Real Estate (Regulation and Development) Act scenario, real estate firms are likely to be in greater need for early-stage equity capital which is patient money willing to partake of risks along with developers.
However, developers also need financing to complete projects on time.
“We have discovered from Fund I and II that for a fund size like ours, Rs30-40 crore deal sizes is a sweet spot. Flexibility of funding and repayment are significant where investors need to be patient, and ensure that the cash outflow in servicing debt doesn’t kill the project,” Mohnot said.
Over the past four years or so, PE funds have nearly transformed the manner in which they invest in real estate projects given the uncertainties in the sector. They have been reluctant to offer equity capital, and while developers have had more access to funds, it has been mostly in the form of debt and structured debt.
Investors put in around $1.1 billion in equity in real estate projects and $501 million in debt financing, totalling $1.6 billion, according to data by News Corp.’s VCCEdge. Large equity transactions in shopping malls, information technology (IT) parks and special economic zones (SEZ) dominated investments, while residential projects mostly stuck to structured debt deals.
“There is a lot of demand for capital from mid-sized and smaller developers and they mostly have access to debt and structured debt financing. Developers are not in a position to distinguish between equity and debt, where equity is largely available to established developers. Today, equity deals are also being structured with minimum or guaranteed returns and pure equity at an early, land-buying is quite rare,” said Shashank Jain, partner, transaction services at PwC India.