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PE firm IPAL Fund Managers set to launch Rs 350 crore fund

August 24, 2016

Private equity firm IPAL Fund Managers, which has a strategic partnership with Centrum Wealth Management, is planning to launch its second Mumbai-focused real estate fund, and will raise Rs.350 crore from domestic investors, said a top executive.

IPAL has also closed two transactions from its first fund that seeks to buy apartments in bulk at steep discounts.

“The new fund will have a unique theme and will deploy equity capital. Like our first fund, we will invest only in Mumbai. We are planning to launch the fund in two months’ time,” said IPAL’s managing director and chief executive Ramesh Jogani.

Earlier this year, IPAL raised its first fund, IPAL Residential Opportunities Fund-1. The fund has a Rs.250 crore corpus and a co-invest option. It has invested in two residential projects in Mumbai so far.

IPAL is one of the many funds that have built their investment theme around bulk-buying of apartments, taking advantage of high inventory levels and developers grappling with tepid sales.

The fund has bought 12,000 sq. ft of space for Rs.26 crore in Ariisto Realtors’ under-construction project, Ariisto Sommet in suburban Mumbai’s Goregaon. IPAL has effectively bought space worth Rs.52 crore but paid only Rs.26 crore to the developer. The remaining amount will be payable after the company manages to sell these apartments.

In the second transaction, the fund has bought about 8,000 sq. ft for Rs.27 crore in Radius Developers’ project Avenue 54, a six-acre gated community in suburban Santacruz (west).

“The apartment-buying theme works only in Mumbai, where the land costs are high enough to secure such an investment. The strategy has worked well for us because we offer equity in a market where there are not many launches, and there are funding gaps between what the developer wants and what he is offered,” said Jogani.

“We are looking at projects that are premium in location and amenities because we believe these projects sell better than most average projects,” he added.

Radius Developers managing director Sanjay Chhabria and Hiren Patel, executive director of Ariisto Realtors did not respond to call and text messages for comment.

Radius Developers has raised significant capital in the last year-and-a-half. Last year, Altico Capital India Pvt. Ltd, the non-banking financial company (NBFC) of Asia-focused investor Clearwater Capital Partners LLC, provided Rs.450 crore of debt financing to its residential project at Mazgaon in south Mumbai and in another deal, IIFL Group and some of its wealthy clients invested Rs.300 crore in its slum redevelopment project in the Mumbai suburb of Borivali.

Some of the funds that have invested money or are planning to buy apartments in bulk are Piramal Fund Management Pvt. Ltd, JLL India’s investment arm Segregated Funds Group and Aditya Birla Real Estate Fund.

“Selection of the inventory that you are buying is critical because it has to be saleable. We enter a project only at a late stage, when there is cash flow generation and surplus inventory,” said Amit Goenka, managing director and chief executive of Mumbai-based Nisus Finance Services Co. Pvt. Ltd, which has also done similar deals through project-specific entities.

Goenka said there is significant demand from developers for this product because it creates another financing solution that doesn’t add to their balance sheet leverage level. “So technically, as and when the builder sells the inventory, he repays the investor and there is no quarterly repayment pressure,” he explained.

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