After raising commitments of over Rs. 500 crore in its Indiabulls Real Estate Fund, Indiabulls AMC has launched its second series of Real Estate Investment Scheme called Indiabulls High Yield Scheme. The category II AIF will invest in real estate projects via structured debt securities or high yield debentures issued by companies.
When it comes to investing in real estate projects, the biggest fear of investors is delay in project completion. Akshay Gupta, Associate Director & CEO, Indiabulls AMC says that instead of investing in real estate directly, a fund route is relatively safer for investors as the fund does a thorough due diligence to mitigate risks.
Here are some of the risk mitigation strategies which will be adopted by the fund:
- It will partner with developers with a proven track record of project completion.
- The fund will have an investment exposure cap for each city, developer and project.
- The AMC will seek views from third party consultants regarding legal, technical and the regulatory framework in the projects the fund will invest.
- Personal guarantee of promoters, even promoters shares are pledged with the debenture trustee.
- The fund has exit strategies at the time of investment.
- Apart from this, the fund will invest in a structured debt with some mezzanine financing in other debt securities.
Tenure & Ticket size
The tenure of the fund is four years which can be extended by one year. Like all AIFs, the minimum investment/ticket size is Rs. 1 crore and the fund is targeting to raise of Rs. 500 crore with a green shoe option of Rs. 500 crore. Investors have to give 10% of the committed capital at the time of application.
The fund is targeting a return of 21-23% at the investment level and has kept 12% as the hurdle rate.
According to its product note, the first series - Indiabulls Real Estate Fund I deployed 83% of its commitments within eight months of the launch. The fund house claims that the IRR generated by this fund is consistent to what was promised to investors at the time of launch.
However, it is too short a period to judge the performance of a fund because the overall PE funds which invested in real estate have performed well. The real estate sector is starved for cash which is evident by the weak cash flows. Thus, to generate cash, companies will try to raise money via such funds. In 2015, approximately $2.77 billion was invested in real estate projects as against $2.1 billion in 2014, according to Mint newspaper.
Experts say that UHNIs are bullish on the real estate sector which is evident from the commitments raised by such funds.