PE funds, NBFCs join hands for big-ticket real estate deals

Private equity (PE) funds and non-banking financial companies (NBFCs) are joining hands to invest in real estate projects to hedge risk in a sluggish market and undertake big-ticket transactions.

Consortium lending, where two or more investors back a realty project or a company, is the outcome of debt or equity syndication in a sector where often a single lender or investor is unable to invest large amounts or wants to distribute risk.

Over the past two years, the realty sector has seen its worst ever slowdown, but this has not deterred PE funds and NBFCs from backing developers in need of finance.

In fact, a lot of capital is chasing a handful of good deals, leading to stiff competition among investors and more vistas for collaboration.

This year has seen quite a few such deals and sector experts say this is just the beginning.

In October, Piramal Fund Management Pvt. Ltd and Altico Capital India Pvt. Ltd co-invested Rs.720 crore in multiple projects of Century Real Estate Holdings Pvt. Ltd in Bengaluru, in one of the largest structured debt transactions.

In another instance, the Shapoorji Pallonji Group partnered with Standard Chartered Private Equity, International Finance Corporation (IFC) and the Asian Development Bank (ADB) in August to build 20,000 affordable homes across the country. The partnership will invest about $200 million in the project.

Lead investor Standard Chartered, along with IFC and ADB, will invest 70% of the $200 million, and the rest will come from Shapoorji Pallonji.

There are a number of smaller transactions adopting the collaboration route as well.

“In the long run, collaboration among investors will be more pronounced in large-ticket lending or private equity deals. It will be driven mostly by the investors’ need to manage concentration risk. There will be a separate breed of lead investors who will be in the forefront of this, who will originate, negotiate, structure large-ticket investments, underwrite all or a substantial part of these, and bring LPs (limited partners) or co-investors to subscribe to part of the investment,” said Ashish Singh, India managing director, real estate private equity, Standard Chartered.

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