Motilal Oswal Real Estate (MORE), the real estate private equity arm of Motilal Oswal Financial Services, is looking to raise up to $109 million (Rs 800 crore) for its fifth real estate fund India Realty Excellence Fund V (IREF V).
IREF V has been set up as an alternate investment fund (AIF Category II) registered with stock market regulator SEBI. MORE expects to achieve the first close of the fund by March 2021 and conclude fundraising in the next 6-9 months, it said in a statement.
While the earlier three funds (IREF II, IREF III and IREF IV) focused on early-stage investments, IREF V would target construction finance in post-approval projects. The fifth fund plans to deploy the capital in mid-income/affordable residential projects across the top 7 cities in India (Mumbai, Delhi-NCR, Pune, Bangalore, Chennai, Hyderabad and Ahmedabad) while selectively investing in commercial projects.
IREF V would focus on structured debt investments with established developers and undertake 12-15 transactions of Rs 60-80 crore each, the statement added.
“In our earlier funds, our investment strategy has been to partner with established developers in early stage investments through structured debt in their mid-income/ affordable housing projects. We have focused more on IT cities and largely stayed out of Mumbai and Delhi NCR due to the high leverage in these cities. This strategy has worked well for us over the last few years. In our upcoming fund, however, the focus will be to provide construction finance in post approval projects,” Sharad Mittal, Director & CEO of MORE said.
To date, MORE has invested capital in the real estate sector through four funds and PMS/NCD investments. Today, the cumulative AUM under MORE stands at over Rs. 3,700 crores spread across IREF (Rs 200 crore), IREF II (Rs 500 crore), IREF III (Rs 1,030 crore), IREF IV (Rs 1,150 crore) and the remaining under PMS/NCD Investments.
From its previous three funds, the firm has clinched multiple investment deals with the likes of Casagrand Group ATS Group, Shriram Properties, and Kolte-Patil Developers.
“The last few years have been challenging for the industry, which has been grappling with a prolonged slump due to the impact of regulatory reforms and the liquidity crisis created by IL&FS starting in September 2018. With NBFCs putting brakes on new lending and banks becoming selective, there has been a huge gap in construction finance available in the sector over the last two years,” Mittal said.
“In the last six months following the nationwide lockdown, we have seen a strong recovery in demand fuelled by multi-decade low mortgage rates, five-year stagnated prices, reducing demand-supply gap in inventory, government support through stamp duty reductions and the genuine need of staying in an owned home during the COVID pandemic. These factors will lead to a resurgence in residential demand over the next few years,” he added.
MORE’s fourth fund, IREF IV, which achieved its final close in 2020, is currently under deployment and has made 10 investments so far.