IDFC eyes first close and new structure for RE funds

The Indian asset manager is anticipating a $60m close just two months after launching its domestic fund, but is considering changing its foreign fund to a joint venture.


Indian fund manager IDFC Alternatives has launched a domestic real estate fund targeting INR7.5 billion (€88 million; $120 million) after a slower-than-expected response to its US dollar denominated fund offering, and expects to announce a first close within the month.

A month into fundraising, chief executive MK Sinha said that the firm had already secured commitments of almost $60 million from high net-worth individuals and family offices in India. IDFC is hoping to draw between 50 and 60 investors for its first close.

The fund is structured as a debt fund that will focus on residential developments in need of “last-mile completion financing”.

The firm has so far invested INR1.25 billion in two such assets on its balance sheet, which it plans to transfer to the fund after the final close to give it some seed assets and minimize the J-curve, Sinha said.

“We want to put our money where our mouth is, as that gives investors a level of comfort that we’re not going into something we wouldn’t back ourselves,” Sinha added.

Response to IDFC’s foreign direct investment-compliant commingled fund, however, has been slower. The firm officially launched the fund in July of last year after plotting and researching for its foray into real estate since the December before. As of now, however, the fund has not secured any hard commitments.

Sinha added that while it was unlikely IDFC would raise the capital in a commingled fund, the firm was considering a managed account or a joint venture with international institutions. Full details, however, are still being worked out.

“We did get positive responses, but a lot of LPs just don’t have allocations to Indian commingled funds specifically,” Sinha said.

The firm is also likely to cut its overall target for the FDI-compliant fund from $500 million to $300 million for a separate account/JV structure. But just like for its debt fund, IDFC has locked down two grade A office buildings worth a total of $150 million from its balance sheet capital, which the firm intends to transfer to the foreign fund upon closings. He said the fund will still have a target IRR in the high teens with a more core-plus strategy in Special Economic Zones (SEZs).

IDFC is only the most recent Indian fund manager to change fund structures. In August, Kotak Realty Fund changed its second commingled fund into a club fund with a $200 million commitment from Abu Dhabi Investment Authority, PERE reported. Domestic conglomerate Piramal and the Canada Pension Plan Investment Board also established a $500 million joint venture for residential development debt platform just this week.