Slump-hit realty funds go slow on raising money

Slump-hit realty funds go slow on raising money
The Economic Times, February 18, 2009, Page 17

Prashant Mahesh MUMBAI

IT’S not the best of times for real estate funds. Given the slowdown in the sector, they are going slow on raising money from their investors — a process that is referred to as the drawdown option. This is on account of a paucity of investment opportunities.

Typically, a real estate fund works on a commitment from its investors for the amount to be raised. Initially, the fund collects about 20-25% of the amount that has been committed. As and when investment opportunities crop up in the real estate space, funds make a drawdown on investors asking for funds. Investors in normal practice get about a month to pay such drawdowns. Real estate funds are close ended for a period of 7 years and the money is raised from investors over a period of 3 years.

With the slowdown in the real estate sector, funds are realizing that it has become difficult to get the right opportunities to deploy money. This has resulted in the slowing down in calling for drawdowns from investors. Over the last 2-3 years, several funds like India REIT, Milestone Capital Advisors, HDFC and Kotak raised money from local as well as overseas investors. The ticket size for the domestic funds ranged from Rs 25 lakh to Rs 5 crore.

The Anand Jain-promoted Urban Infrastructure Fund, where the minimum ticket size was Rs 1 crore, closed its first fund in a year and a half. After the rights issue in May last year, the fund has not exercised the drawdown option. In the case of Kotak India Real Estate Fund, which was launched in July 2007 with a ticket size of Rs 5 crore, only 47% of the committed amount has been drawn down. “We have not asked for any money in the last nine months since we do not find any suitable investment opportunities”, said an official from the fund, who did not want to be quoted.

The case of India REIT is quite similar. It has two domestic funds with a corpus of Rs 430 crore and Rs 550 crore respectively. “Though we have completed the drawdowns six months ago only 75% of the funds have been deployed “, says Ramesh Jogani, MD, India REIT advisors. Also, there are no plans to raise fresh funds.