<article>Private equity (PE) funds and non-banking financial companies (NBFCs) are joining hands to invest in real estate projects to hedge risk in a sluggish market and undertake big-ticket transactions.</article>

Private equity (PE) funds and non-banking financial companies (NBFCs) are joining hands to invest in real estate projects to hedge risk in a sluggish market and undertake big-ticket transactions.
Consortium lending, where two or more investors back a realty project or a company, is the outcome of debt or equity syndication in a sector where often a single lender or investor is unable to invest large amounts or wants to distribute risk.
Over the past two years, the realty sector has seen its worst ever slowdown, but this has not deterred PE funds and NBFCs from backing developers in need of finance.
In fact, a lot of capital is chasing a handful of good deals, leading to stiff competition among investors and more vistas for collaboration.
This year has seen quite a few such deals and sector experts say this is just the beginning.
In October, <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Piramal+Fund+Management">Piramal Fund Management Pvt. Ltd</a> and Altico<a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Altico+Capital+India"> Capital India Pvt. Ltd</a> co-invested Rs.720 crore in multiple projects of Century Real Estate Holdings Pvt. Ltd in Bengaluru, in one of the largest structured debt transactions.
In another instance, the <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Shapoorji+Pallonji+Group">Shapoorji Pallonji Group</a> partnered with <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Standard+Chartered+Private+Equity">Standard Chartered Private Equity</a>, <a style="color: #000080;" href="http://www.dealstreetasia.com/?s=IFC">International Finance Corporation (IFC)</a> and the Asian Development Bank (ADB) in August to build 20,000 affordable homes across the country. The partnership will invest about $200 million in the project.
Lead investor Standard Chartered, along with IFC and ADB, will invest 70% of the $200 million, and the rest will come from Shapoorji Pallonji.
There are a number of smaller transactions adopting the collaboration route as well.
“In the long run, collaboration among investors will be more pronounced in large-ticket lending or private equity deals. It will be driven mostly by the investors’ need to manage concentration risk.
There will be a separate breed of lead investors who will be in the forefront of this, who will originate, negotiate, structure large-ticket investments, underwrite all or a substantial part of these, and bring LPs (limited partners) or co-investors to subscribe to part of the investment,” said Ashish Singh, India managing director, real estate private equity, Standard Chartered.
Singh added that while the real estate market is still dominated by single-investor deals as far as private equity is concerned, many consortium deals are taking place on the structured debt side.
PE funds invested about $2.4 billion in the real estate sector, across 53 transactions, during the first nine months of 2015, surpassing the full-year investments of $2.1 billion in 2014 across 80 deals, according to data from VCCEdge, the financial research platform of VCCircle that tracks investments.
NBFCs have also been aggressive lenders to real estate, leading to competition with PE funds.
“While we have the appetite and depth to go out and do large-sized deals on our own, in a few cases, we have collaborated with specific partners to do a particular transaction. We are also approached by other investors to partner them if the deal size is large,” said Khushru Jijina, managing director, Piramal Fund Management.
Recently, Piramal and Axis Bank closed a Rs.550 crore financing deal in 3C Company’s mixed-development project in Noida.
In many cases, small NBFCs or PE funds are approaching large funds to involve them in deals that the former are unable to execute on their own.
Deal sizes have also increased in 2015, with investors writing larger cheques to meet developers’ growing demand for capital.
“We are in favour of such consortium deals enabling a much larger corpus (Rs.100-150 crore) being invested into a deal and having the option of exiting individually as per the individual fund structures. We are evaluating deals upwards of Rs.150 crore, keeping our core philosophy of keeping our sweet spot intact at Rs.40-80 crore, thus ensuring portfolio level returns at around 22%. Also, the likelihood of partnering large A+ developers becomes a possibility when one has a larger corpus available in hand for deployment,” said Rubi Arya, executive vice-chairman of Milestone Capital Advisors, a private equity fund.
Financial services firm IIFL Group’s real estate private equity arm is also looking at deals, where it can collaborate with an NBFC on a Rs.700-800 crore transaction.
“Many a time, such deals are driven purely by the requirement of the developer and his ability to offer the underlying security, which is critical in such deals,” said Shashank Jain, partner, transaction services, at accounting firm PricewaterhouseCoopers India.
“Consortium lending is yet to happen in commercial office transactions and pure equity lending in real estate,” he added.
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<h4>This article was first published on <a href="http://www.livemint.com/Companies/D0eo2bXjMGyNlXwQYfsYvO/Reliance-Infrastructure-in-talks-to-sell-cement-roads-busin.html" target="_blank">Livemint</a></h4>
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PE funds, NBFCs are joining hands to invest in real estate projects to hedge risk in a sluggish market and undertake big-ticket transactions.

India: PE funds, NBFCs come together to hedge risks of big-ticket real estate investments

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