Occupied Buildings the New Favourites for PE Investors
Occupied commercial buildings are the new favourites for private equity investors in the real estate sector. In a property market where developers are trying to manage cash flows to reduce debt and fund development projects, dedicated rental yield funds like IL&FS Milestone Fund and JM Financial Real Estate Income Fund have bought into such assets, while a few new funds are being raised to focus on this segment. While the residential real estate market has seen sales slowing down, the commercial office market has been healthy, with many Indian corporates in the IT/ITes, BFSI, pharmaceutical sectors looking to expand.
According to consultant Cushman & Wakefield , in the last one year, Gurgaon has seen rentals go up by 5-10 %, Bangalore by 10-15%, Chennai by 4-9%, Kolkata by 10-19% and Mumbai by 10-13%. “We are looking at investing in AAA-rated properties with AAA-rated tenants, who will carry minimum risk,” says Ramesh Jogani , managing director of Indiareit Fund Advisors , which will launch a Rs 800-crore rental yield fund in August this year. The fund plans to deploy the capital in a-year-and-a-half to cash in on this opportunity that has opened up.
“We believe commercial values are at an alltime low today.” In a recent deal, IL&FS Milestone Fund invested about $20 million in a leased commercial building, Patel Corporate Park, in Mumbai’s Jogeshwari area. The building has a single tenant-Pfizer. In May, another fund JM Financial Real Estate Income Fund bought PVR’s Phoenix Mills theatre property for . 100 crore in a sale and lease back deal. “These funds are more for investors who are lower on the risk side,” says RK Narayan, director at Infinite India, which is raising a Rs 500-crore fund. Investing in such a commercial property will have three pronged benefits – income from rents, rental appreciation and capital value appreciation. Over a five-year period, returns from such investments could be in the 18-20 % range and there is a fair amount of certainty. Returns in development projects are higher but so are the risks.
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Tags: Investors, New Favourites
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