EXCLUSIVE: Kotak eyes $400m core India fund

The Mumbai-based real estate investment management business of Indian financial conglomerate Kotak Mahindra is planning to introduce an investment vehicle focused on completed, income-producing properties in India.

Kotak Realty Fund, the Mumbai-based real estate investment management business of Indian financial conglomerate Kotak Mahindra, is set to join the ranks of India-focused firms hoping to offer institutional investors a core property investment vehicle for the country.

PERE can reveal that Kotak is in the midst of finalizing plans for a first fund to target completed, income-generating commercial properties and that it could target a capital raising of as much as $400 million for it. The vehicle could be introduced as soon as the second quarter this year.

In addition, it is understood that a dedicated team of staff would be assembled to source, execute and asset manage deals for the vehicle. The firm currently employs approximately 12 staff dedicated to real estate investments. 

The vehicle’s structure is yet to be determined, although it might resemble Kotak’s recent residential development-focused investment club, which attracted $200 million from United Arab Emirates sovereign wealth fund, Abu Dhabi Investment Authority, and $160 million from Qatar’s sovereign wealth fund, Qatar Investment Authority, as well as $40 million from Kotak itself.

Should Kotak’s core investment vehicle come to fruition, it would see the group join certain rivals in offering to institutional investors a means of owning fully-leased and income-producing real estate in India. It would also go some way to changing a perception of private real estate investment in India from being purely development-focused to being able to additionally offer lower-risk, non-development orientated investing options.

Other firms targeting investments in completed, income-producing assets in India include North American investment giants The Blackstone Group and Brookfield Asset Management. Meanwhile, New Delhi-based private equity real estate firm, Red Fort Capital, is thought to have been asked by some of its investors to retain certain of its now-completed commercial properties that are currently held in limited-life opportunity funds.

Kotak’s offering also comes as India’s REIT regime begins to take shape. Approved last year, these tax-efficient investment structures are designed to be an additional means for investors to gain exposure to the country’s real estate via relatively lower risk means and are viewed as important in terms of the market’s maturity.

And, following the election of Narendra Modi as prime minister of India last year, certain rules and regulations regarding foreign direct investment in the country have been relaxed including new permissions for foreign investors to acquire completed real estate. Previously investment by overseas capital was restricted to development.

The Indian government has also introduced various incentives for developers of affordable housing in a bid to tackle the country’s housing supply shortage and it is thought that Kotak also will look to establish a fund for investments in this space too. This vehicle, however, would be smaller in scale, with the firm considering a $150 million to $200 million fundraising target.
Kotak declined to commen