IDFC eyes official launch of first RE fund

The Indian infrastructure-focused fund manager is set to officially launch its $500 million real estate-focused fund in July.

Indian fund manager IDFC Alternatives has set the official launch of its first real estate fund for next month, after almost six months of ‘soft marketing and research', according to MK Sinha, chief executive. The fund will be IDFC’s first foray into real estate, as the investment firm has been solely focused on India’s infrastructure market since its 2001 founding through various infrastructure and private equity vehicles.

Sinha said the “soft marketing” for its new property venture had not changed the firm’s strategy or target. The real estate fund still will be targeting $500 million in equity and will make investments in Special Economic Zones (SEZs). The firm is targeting an 18% IRR for this fund, and in fundraising will be reaching out to “global LPs looking for low risk/steady return real estate investments in India, like pension fund and insurance funds,” Sinha said.

In order to minimize development risk for international investors, IDFC only will invest in fully developed projects – an attractive investment strategy as cap rates are at an “all-time high” and struggling developers often are willing to trade 100 percent of the equity in their projects for cash.

Since December, IDFC has secured a joint venture partnership with a domestic real estate developer for the fund and plans to have that developer provide some of the asset management alongside IDFC, Sinha told PERE. He declined to disclose the name of the developer, however.

The firm already has bought two real estate assets using balance sheet money for a total of $150 million, which will be transferred to the fund once it is raised. Even if the firm cannot raise the full $500 million for the fund, it still will invest in the opportunities it finds, Sinha explained

First set up in 2002 as IDFC Private Equity, IDFC Alternatives now has $2.2 billion in asset under management across four funds, all focused on India’s infrastructure sector. IDFC set up its real estate business in 2010, “recognizing the significant role played by the real estate sector within India's overall economic and social growth framework.”