APG, Sparinvest in India club with Godrej Properties

The Dutch pension services giant and Copenhagen-based real estate fund of funds firm are among a club of investors to co-launch a residential development company with Mumbai-listed Godrej Properties. The new enterprise will be capitalised with $138 million of equity initially.

Dutch pension services provider APG Group and Copenhagen-based real estate fund of funds firm Sparinvest Property Investors are among  the investors to have backed the creation of a residential development company focused on India’s residential sector.

The investors have backed Mumbai-based Godrej Properties, a Bombay Stock Exchange-listed developer, in its creation of a Rs 770 Crore (€109.5 million; $138 million) business to focus primarily on the development of ‘mid-income’ residential projects in Mumbai, New Delhi and Bangalore. The capital will be committed to land purchases in markets with “currently dislocated” conditions and the JV firm has earmarked the next seven years during which to “generate substantial earnings”.

The investors have committed approximately $95m of initial equity to the new business with the remaining $43 million of capital coming from Godrej – although both sides expect to grow their commitments over time as opportunities emerge.  Godrej will assume responsibility for managing the platform’s investments and will earn from them a management fee.

Pirojsha Godrej, managing director and chief executive officer of Godrej Properties said the association with APG and the other investors would enable the firm to source deals which required large amounts of capital. He said: “This is an important growth opportunity for Godrej Properties which will allow us to extend the number of projects in our portfolio while maintaining our capital efficient land sourcing strategy.” Since Godrej Properties was formed in 1990 it has grown a development pipeline extending to 74 million square feet.

Sachin Doshi, senior portfolio manager at APG – one of the world’s biggest investors in real estate with an allocation to the sector of almost €30 billion – said: “We are looking forward to this relationship with Godrej Properties to invest in the mid-income residential segment in India’s tier-1 cities. In our view, these cities will continue to be long term beneficiaries of India’s urbanisation trends and also represent the deepest pools of residential demand in the country. We particularly like Godrej Properties’ capital efficient strategy and the strong brand affinity it enjoys with its customers and stakeholders.”

The investment by Sparinvest marks the Danish fund of funds manager’s first foray into India. Investing from its Sparinvest Property Fund II, a global fund of funds that attracted €200 million last year, the firm committed approximately $25 million to the partnership. Bo Jensen, managing partner of the firm told PERE: “We’d been investigating India for the last two years because we thought there was an interesting investment case. But we had difficulty locating the right partner. There were a lot of India funds set up six and seven years ago and they haven’t performed very well so we were reluctant to do [funds].”

“Then we got talking with the APG guys and the Godrej guys and decided to do something together. This is more like a club,” he added.

Jensen said the investment was Sparinvest’s tenth for the second fund and that after completing a final three – two of which have already been identified – the firm would seek to launch a third global fund of funds. He said he expected the second fund to be fully invested by the third quarter of this year: “Then we’ll think about Fund III in the autumn.”

India has taken something of a backseat for international institutional investors in recent years following a poorly-performing first wave of private equity real estate funds after the government permitted foreign direct investment in 2005. In addition, the relative shunning of blind pool commingled funds in general has rendered many approaches to the country’s market challenging as investors consider through which structures are the best investments made.

Nonetheless, over recent months interest in Indian real estate from international institutions has picked up a little and private equity real estate firms including Red Fort Capital and Kotak Realty Advisors have held capital closings.