The IIFL Group and some of its wealthy clients are investing Rs 300 crore in a real estate project in the western Mumbai suburb of Borivali, which will come up on redeveloped slum land, a company executive said.
The investors—IIFL Holding Ltd’s non-banking financial company India Infoline Finance Ltd, private equity arm IIFL Alternate Asset Advisors Ltd and the clients—have disbursed Rs.100 crore as the first tranche, which will finance the relocation of slumdwellers, procuring government approvals and initial project expenses.
The project, which will create a saleable area of about 850,000 sq. ft of residential space, is being developed by Radius Developers, in partnership with Deserve Builders and Developers Ltd. While Deserve Builders will primarily look into the slum component, which will involve obtaining approvals and clearing the land, Radius will build and market the project.
Real estate development through slum redevelopment usually takes long and sales will begin only after a year.
“The project has received the mandatory letter of intent to start the process of clearing the slums. This is a zero-coupon, structured debenture issue where the returns are going to come from the profits of the project,” said Balaji Raghavan, head, real estate practice, IIFL.
This is Radius Developers’ second slum redevelopment project. The company’s strategy so far has been to take up projects in Mumbai and Pune that have been stuck for several reasons and then launch or relaunch them under the Radius brand, market and sell them, and enter a profit-sharing agreement with the existing developer through a joint venture.
“There are a number of costs involved in the primary stage of a slum project and this money will be used to fund rental accommodation for slum dwellers and for project permission,” said Sanjay Chhabria, managing director of Radius Developers.
IIFL Alternate Advisors has funded its share in the transaction from its recently raised IIFL Real Estate Fund (Domestic) Series II, a Rs.1,012 crore residential-focused fund.
Until recently, institutional investments in slum projects were rare due to various complications and lengthy procedures typical of such developments. However, some have lately ventured into them.
In August, Piramal Fund Management Pvt. Ltd invested Rs.200 crore in Omkar Realtors and Developers Ltd’s Dhobi Ghat slum redevelopment project in Mumbai. Piramal has deployed a dedicated redevelopment fund that has funded both slum and society redevelopment projects in the city.
Real estate developers have been actively raising capital, more so when the sector is undergoing a slowdown. They need the comfort of institutional funding to either refinance existing debt, make payments for land and approvals and for some, for project completion either through equity or debt.
“There is a lot of institutional capital available in the market today and real estate firms have more access to capital. However, most of the funding is available in the form of debt or in a structured debt-equity format where the fund ensures a certain form of fixed return or collateral and security,” said Shashank Jain, transaction services partner with PricewaterhouseCoopers India, a consultancy firm.
This article was first published on Livemint.com