Edelweiss setting up US$ 1 bn real estate fund

Bengaluru: Edelweiss Alternative Asset Advisors Ltd, part of diversified financial services firm Edelweiss Group, is raising up to $1 billion for its first residential real estate fund, a top executive said.

Edelweiss Real Estate Fund is a structured credit, offshore fund that is looking to invest $15-75 million in each transaction. It is planning to do a first close of about $350 million in a month’s time, making it one of the largest first closures in recent times.

Once a fund achieves the so-called first close, it starts making investments.

“We are looking to partner mid-sized developers in real estate projects that have already got the key approvals. The fund will not provide capital to buy land or invest in an early stage of a project,” said Venkat Ramaswamy, executive director and co-head of global asset management, Edelweiss Financial Services Ltd.

The fund will scout for investment opportunities in five property markets—National Capital Region (NCR), Mumbai, Pune, Bengaluru and Chennai.

Private equity (PE) firms plan to raise about $3 billion (excluding the Edelweiss fund) from overseas investors this fiscal year to invest in projects in the top property markets despite choppy markets and inadequate interest from limited partners (LPs) in the Indian real estate segment.

LPs include public and corporate pension funds, insurance companies, wealthy individuals and university and other endowments that are the source of money for PE firms, which then establish funds to invest.

Housing Development Finance Corp. Ltd (HDFC) has two new offshore funds, a $500 million fund through HDFC Property Fund that will be launched later this year and an $850 million fund through another entity which is already in fund-raising mode.

IDFC Alternatives is also targeting about $250 million from offshore investors for a new fund and has entered into an asset management and development partnership with property firm SARE Homes, which will manage and monitor the projects in which the fund will invest.

For six-to-seven years, Edelweiss has made investments in real estate projects mainly out of its own balance sheet. This time, as it gears up for a full-fledged fund, it is tapping investors in Asia, Europe and the US.

“Edelweiss is a meaningful investor in all our alternative credit funds, and our fund size is decided on the basis of what we can deploy. We have an extremely good team with strong real estate market connects in our five addressed cities, which is essential in terms of deploying and recovery of capital,” said Ramaswamy.

PE funds that invest in real estate projects typically opt for equity investments, which carry higher risks and returns; debt investments with lower but guaranteed returns; or structured transactions, which are a mix of both.

In the Edelweiss fund, structured credit means returns are structured keeping in mind the cash flow of the project. It keeps 1.5 to 2 times its investment amount as collateral and has control of the project cash flows.

For home-grown firms such as ASK group and Edelweiss that are raising their first offshore funds, it will be interesting to see how they tap the LP network in today’s challenging conditions, a property consultant said.

“Funds have taken longer to raise offshore capital in recent times as most LPs are not willing to write large cheques and commit upfront capital,” said Shashank Jain, partner, transaction services, PricewaterhouseCoopers India. “Most of them give out smaller amounts, and keep monitoring the fund’s performance and as and when good transactions take place, they commit more money. As a result of which, the final closing of a fund happens in a staggered manner.”

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.