- Sandeep Agarwal, Executive Director, Kotak Realty Fund
With innovative forms of investments replacing plain equity and debt lending, CW PROPERTY TODAY connected with some banks and non-banking financial companies to understand their various modes of lending and repayment to real-estate developers.
Kotak Realty Fund is a leader and one of the earliest entrants in the private equity real-estate industry in India. Since establishment in 2005, it has raised $1.47 billion in aggregate capital commitments and invested in 40 projects and companies across the commercial office, residential, retail, industrial and hospitality sectors. Sandeep Agarwal, Executive Director, Kotak Realty Fund, shares some insight on the same.
Innovative forms of investments are replacing plain equity like themed funds and construction finance. Will this help the realty sector, and how?
The Indian real-estate sector is serviced by funds with differentiated strategies: Structured debt route for growth capital requirements, construction finance for development of projects, yield funds for acquisition of core assets aimed to deliver rental yields, and equity funds for enabling development of multiple projects under programmatic platform structures. Specific funds catering to differentiated requirements are a sign of the growing maturity of the real-estate sector. They enable developers to select the nature of financing, tenors and recourse arrangements according to their funding preference and will facilitate greater efficiency in capital allocation.
What funding options do you offer to builders and developers? Over the past two years, how much funds have you raised for the real-estate industry?
Depending on project and developer requirements, we structure our investments through the equity and debt routes. We are open to evaluating investment opportunities in residential and commercial sectors. We have raised $500 million for deployment under the mentioned strategies.
To which segments within the real-estate sector do you prefer lending? What have the returns been like?
We prefer investing in the residential and commercial asset classes. Our returns have been in the range of 20-24 per cent on an IRR basis.
Realty funds are known for customisation of transactions and are adapted to the needs of developers...
Transactions in real-estate are unique from each other owing to various reasons. As a fund, we normally customise our product offering to suit the requirements of the project. Fundamentally, we underwrite our investments on the basis of project cash-flows and structure our returns in a manner that the construction and development activity of the project are not hindered. Typically, we may offer flexibility such as moratoriums, step-up coupons, coupon with redemption premium, area sharing and inventory financing.
For companies who want to expand and diversify their business, what is your funding option?
In many of our transactions, the funds we provide are utilised by developers and companies to expand their business and acquire new land. The funds may also be utilised by companies for refinancing existing debt or topping up existing debt. Our preference in the residential space is to fund city-centric projects that cater to middle-income families. The funding we provide is structured in line with the status of the project and its cash-flow requirements.