NEW DELHI | MUMBAI: Several private equity funds and non banking finance companies have stepped up active monitoring of their investments in real estate amid concerns over delays in completion of projects and the consequent returns.
Funds including Indiabulls Asset Management, Milestone Capital Advisors and NBFCs such as Xander Finance have either set up in-house teams to monitor investments or are bringing in third-party firms to monitor costs of projects, request for quotation (RFQs) for vendors, sales, Management Information System (MIS) reports and escrow accounts, among many other aspects.
“Investors today are far more involved in monitoring projects so that they can help take corrective measures much before something goes wrong in a project,” said Ambar Maheshwari, CEO for private equity funds at Indiabulls Asset Management Company, which has a four-people asset management team that works alongside the asset management business of the Indiabulls group.
Milestone Capital too has in-house property management expertise which it utilises in active management of its investments.
Rubi Arya, executive vice president of Milestone Capital Advisors said mutual fund managers keep reshuffling portfolios to gain from market movements, which is not a practice in private equity, and hence there is a critical aspect of investment monitoring.
“By moving from pure investing models to investment management models, a fund manager can not only monitor the investment well but also offer various value additions to create a possibility of a better valuation for exit,” she said.
Arya said that this helps create additional incentives for the developer partners to provide timely exits even in cases where projects may be struggling to meet their deadlines.
“In a few extreme cases, we have not shied away from taking control of the project and bringing the development back on track to provide it the expected exits,” she said.
Last year, the investment arm of IDFC, IDFC Alternatives signed an asset management and development partnership with real estate firm Sare Homes.
“In this platform we will develop projects where IDFC will invest with us. Where they will invest in projects of other reputed developers, we will monitor their investment and manage the asset,” said Vineet Relia, managing director of Sare Homes.
The concern for investors also stems from the experience of several PE funds that invested since 2006 where the project either did not see light of day or got delayed, impacting returns that these funds were targeting for their limited partners.
According to data from property research firm Liases Foras, a third of more than 25 lakh apartments launched between 2008 and 2014 were delayed by at least a year.
Today, some of those limited partners are employing thirdparty monitors to safeguard their investments that might be stuck.
“These LPs want someone to protect their investment and also provide strategic advice on when and how to exit their investments,” said Rajarshi Datta, asset management lead at Acquisory, which is working with several funds as well as limited partners to monitor their investments.
It isn’t just equity investors who are stepping up monitoring of investments. Even investors on the debt side are worried because of several delays in interest payment and possible defaults towards real estate funds and NBFCs that have invested in non-convertible debentures.
Credits ET Realty