Canada Pension Plan Investment Board and Piramal Enterprises have joined forces for the creation of a real estate debt platform with a strategy to finance residential developments in India’s biggest markets.
The steward of Canada’s C$192.8 billion (€129.19 billion; $175.36 billion) Canada Pension Plan and the Indian conglomerate Piramel Enterprises, announced today that they each had committed $250 million to a venture intended to bridge a funding gap left by an Indian banking sector already overexposed to the country’s property boom pre-global financial crisis.
CPPIB’s investment was led by its London-based team headed by Europe real estate chief Wenzel Hoberg, who said the partnership would run for an initial two and half years. “That’s the initial opportunity we see,” he told PERE, “but obviously the opportunity is much bigger than that.”
CPPIB’s partnership with Piramal brings the total equity dedicated by the institution to India’s private real estate market to $450 million. It follows a $200 million commitment to a joint venture with commercial property developer Shapoorji Pallonji Group, in which it has assumed 80 percent ownership of all developments that it undertakes.
Khushru Jijina, managing director of Indiareit, Piramal’s private equity real estate business which is leading the initiative for the conglomerate, added how the venture would typically lend loans of between $30 million and $50 million in size on terms of between three and four years and at interest rates at between 18 percent and 22 percent – significantly higher than typical, but now scarce, bank finance.
Jijina said the types of loans that the JV could offer would nevertheless be attractive to borrowers as they offer various flexibilities that India’s banks could not such as different repayment schedules and a wider range of uses for the borrower than just straight construction. “We have the flexibility to break it into interest payments and redemption premiums too. All that means extra flexibility for the developer,” he said.
In Piramal, CPPIB has partnered with an organization that already has been busy in the residential debt space. Jijina said the firm had built up a loan book valued at $300 million over the past two years alone.
The partnership between CPPIB and Piramal was brokered by Macquarie Capital and VSG Capital Advisors.