The real estate private equity arm of Motilal Oswal Financial Services Limited has floated its fifth fund with a target corpus of Rs 800 crore ($109 million), the company said in a statement.
Motilal Oswal Real Estate’s (MORE) fund will provide construction finance to projects that have secured approvals.
The capital will be broadly deployed in mid-income/affordable residential projects across the top 7 cities in India while commercial projects will form a small part of the fund portfolio.
The statement said that India Realty Excellence Fund V (IREF V) will focus on structured debt investments and do 12-15 transactions in the range of Rs 60-80 crore each ($8.2-10.9 million).
MORE’s strategy for the current fund differs from what the real estate private equity unit has done in the past. It used to primarily invest in residential projects at the land acquisition stage through quasi-debt/equity route.
With its fifth fund, MORE will be providing construction finance purely in the form of debt to developer partners.
Today, MORE’s assets under management stand at more than Rs 3,700 crore.
“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 chief executive officer of MORE.
He said that in the last six months following the nationwide lockdown, there has been a strong recovery in demand fuelled by multi-decade-low mortgage rates, five-year stagnated prices, reducing demand-supply gap in inventory, government support through stamp duty reductions and the genuine need of staying in an owned home during the pandemic.
“These factors will lead to a resurgence in residential demand over the next few years. We believe that this is an opportune time to launch our next fund which will focus on construction finance and post-approval funding,” he said.
Over the years, MORE has worked with a bunch of developers and sealed multiple transactions with them: Casagrand Group (11), ATS Group (7), Shriram Properties (3), Kolte-Patil Developers (2).
Mittal said that MORE will be able to provide a range of financial solutions with the launch of its fifth fund.
The fund will tap into high net worth individuals (HNIs) and family offices to scoop up capital. “We aim to raise the corpus in the next 6-8 months and deploy the capital in the next 12 months,” he said.
The fund is aiming to clock an internal rate of return (IRR) of 16-18% at portfolio level.
The statement said that MORE’s second fund -- IREF II -- has so far made 14 investments and secured 11 exits at an investment level IRR of 21.3%. The fund has returned 126% of the money to investors.
The third fund -- IREF III -- has till date made 24 investments and secured 6 exits at an investment level IRR of 22.4%. It has returned 41% of the money back to its investors.
The fourth vehicle -- IREF IV -- is currently under deployment and has so far made 10 investments.