Motilal Oswal Real Estate (MORE), the real estate private equity arm of Motilal Oswal Financial Services, is looking to raise up to Rs 800 crore through its recently-launched fifth real estate fund India Realty Excellence Fund V (IREF V).
While the earlier three funds (IREF II, IREF III and IREF IV) focused on early-stage investments, IREF V would focus on construction finance in post-approval projects.
The fund plans to deploy the capital in mid-income/ affordable residential projects across the top 7 cities in India (Mumbai, Delhi-NCR, Pune, Bengaluru, Chennai, Hyderabad and Ahmedabad) while selectively investing in commercial projects. IREF V would focus on structured debt investments with established developers and undertake 12-15 transactions of Rs 60–80 crore each.
MORE till date has invested capital in the real estate sector through four real estate funds and PMS/NCD investments. Today, cumulative AUM under MORE stands at over Rs 3,700 crore spread across IREF (Rs 200 crore), IREF II (Rs 500 crore), IREF III (Rs 1,030 crore), IREF IV (Rs 1,150 crore) and balance under PMS/NCD Investments, the company said.
The Fund has been set up as an alternate investment fund (AIF Category II) registered with stock market regulator SEBI. MORE expects to achieve first close by March 2021 and conclude fundraising in the next 6-9 months.
MORE is part of Motilal Oswal Private Equity (MOPE), which is the alternative investments platform of Motilal Oswal Financial Services Limited. The cumulative AUM under MOPE is more than Rs 7,000 crore.
“Our real estate private equity business has scaled up over the last decade. We believe that the sector is undergoing a structural shift and is at the cusp of a transformation. We will continue to grow our presence in this space through value investing over the coming years,” said Vishal Tulsyan, MD & CEO, MOPE.
“The last few years have been challenging for the industry, which has been grappling with a prolonged slump due to the impact of regulatory reforms and the liquidity crisis created by IL&FS starting September 2018. With NBFCs putting brakes on new lending and banks becoming selective, there has been a huge gap in construction finance available in the sector over the last two years,” said Sharad Mittal, Director and CEO of MORE.
In the last six months following the nationwide lockdown, we have seen a strong recovery in demand fuelled by multi-decade low mortgage rates, five-year stagnated prices, reducing the demand-supply gap in inventory, Government support through stamp duty reductions and the genuine need of staying in an owned home during the COVID pandemic.
These factors will lead to a resurgence in residential demand over the next few years. We believe this is an opportune time to launch our next fund which will focus on construction finance and post-approval funding, he said.
With the launch of this fund, MORE will provide a full financial solution to their developer partners; early-stage financing through their earlier funds and post-approval stage/construction financing through this new fund.
The Indian market has typically seen private equity financing in the early stages of the project (land and approvals). However, due to the liquidity crunch that the sector is witnessing over the last two years, there is a funding gap even in the post-approval stage, the company said.
“In our earlier funds, our investment strategy has been to partner with established developers in early-stage investments through structured debt in their mid-income/ affordable housing projects. We have focused more on IT cities and largely stayed out of Mumbai and Delhi NCR due to the high leverage in these cities. This strategy has worked well for us over the last few years. In our upcoming fund, however, the focus will be to provide construction finance in post-approval projects. We shall continue to work with our preferred partners and capitalize on our existing strategy,” he added.
“This is our fifth fund. Majority of our investors would be repeat investors from our previous funds. We would like to thank them for reposing their faith in us and partnering with us over the last few years.”
MORE’s second fund, IREF II, which achieved its final close in 2015, has till date made 14 investments and secured 11 exits at an investment level IRR of 21.3 percent. The Fund has returned around 126% of the money back to its investors.
MORE’s third fund, IREF III, which achieved its final close in 2017, has till date made 24 investments and secured 6 exits at an investment level IRR of 22.4 percent. The Fund has returned around 41 percent of the money back to its investors.
MORE’s fourth fund, IREF IV, which achieved its final close in 2020, is currently under deployment and has till date made 10 investments.