PropShare Capital is planning to raise Rs 700 crore through its maiden real estate fund called PropShare Real Estate Fund I (PREF I). The fund is being set up as an Alternate Investment Fund (AIF Category II) registered with stock market regulator Securities and Exchange Board of India (SEBI).
The fund will focus on completed income-generating commercial real estate leased to multinational and blue-chip tenants in the tech hubs of India. PREF I is targeting Grade A commercial properties at 7 to 9% annual rental yields with a projected 17 to 20% IRR over a period of 4-5 year hold period, the company said.
PREF I has one of the lowest fees in the industry with a 0.5-0.7% annual management fee and 10-15% performance fee depending on the quantum of investment.
The fund is targeted at institutional investors, HNIs, family offices, and select sophisticated domestic and NRI investors. The minimum investment is Rs 1 crore in-line with AIF regulations, the company said.
PropShare Capital’s current investor base includes institutional investors, family offices, HNIs and ultra HNIs and senior and middle management of large tech, financial services and consultancy companies as well as founders of start-ups.
"The commercial real estate sector in India is primarily driven by multinational corporations outsourcing technology, operations and research and development to the large tech hubs of Bengaluru, Pune, NCR and Hyderabad. These cities account for more than 70% of total leasing and have seen rents and capital values grow steadily over the past 10-15 years. Multinationals have set-up offshoring centres after taking a long-term view of the advantages of being in a country that has a large and accessible talent pool and low operating costs and have made long term investments in people, technology and real estate," said Kunal Moktan, co-founder and CEO, PropShare Capital.
“The COVID-19 pandemic has led to large scale distress, disproportionately affecting certain sectors like real estate. While the broader market has recovered, the real estate sector continues to lag behind. Both debt and public equity remain inaccessible to real estate developers and asset owners putting additional pressure on those with excess levels of debt. Cash flow requirements are now putting pressure on developers and asset owners to raise funds by monetising the highest quality assets in their portfolio leased to blue-chip multinational tenants. This can be evidenced in large office portfolios in Bengaluru being transacted with private equity funds over the last 3-6 months”, said Moktan.
The underlying real estate story continues to remain intact with leasing seeing a sharp recovery in Q2 (Jul-Sep ‘20) and Q3 (Oct-Dec’20) in the top 8 cities increasing 81% and 573% from Q1 respectively. Embassy REIT and Mindspace REIT have reported more than 99% rent collection during the Jul-Sep’20 quarter indicating that multinationals continue to be bullish in maintaining and increasing their outsourcing and R&D presence in India, it said.
The target fund size of Rs 700 crores includes a Rs 200 crore greenshoe option. PropShare Capital estimates an initial closing in 60 days followed by a final closing over the next 6-12 months or earlier. The fund will primarily focus on distressed commercial properties emerging from the COVID-19 pandemic.
PropShare Capital is a SEBI registered portfolio manager, investment advisor and a Category II Alternative Investment Fund manager.