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IDFC sells to Blackstone amid RE strategy overhaul

 The Mumbai-based asset manager has also cancelled plans to raise a commercial real estate fund and is looking to focus its energies the residential sector instead.   

Mumbai-based asset manager IDFC Alternatives has sold office investments to private equity firm Blackstone for 11 billion rupees (€140.97 million; $178 million) as part of a comprehensive re-jig of its real estate strategy, it announced today.

The private equity arm of financial firm IDFC bought a 1.3 million square foot IT park in Noida and a 1.5 million square foot park in Pune in 2011 and 2013 respectively for a total of 8.7 billion rupees. It had previously hoped to use the assets to seed its first commercial real estate fund which it launched in June last year targeting $500 million in equity from investors. But the fundraising never materialised and now the vehicle has been shelved.

“We were hoping to convince LPs that this would be a good strategy to pursue. However, we failed to raise a fund because of a poor India sentiment, concerns around liquidity of these assets and lack of REIT regulations,” said MK Sinha, managing partner at IDFC Alternatives.

The firm’s decision to exit its commercial real estate investments – generating a 22 percent IRR in the process – comes at the time when IDFC, after receiving approval by India’s central bank, is in process to launch its own banking operations. “We cannot keep such a large portion of the proprietary equity of IDFC locked in the hope of raising a fund,” explained Sinha.

Now, IDFC will be focusing on the residential sector. MK Sinha told PERE that the firm is targeting to raise $300 million to $500 million dollars for a new residential fund. The fund, which the firm is planning to launch in the first quarter of 2015, will be invested in affordable housing units in the country. The investments will be made through structured transactions.

Explaining the shift away from commercial real estate, Sinha said: “By the time we would have raised a commercial real estate fund, the interest rates would have softened, the lease rentals would have increased and the cap rates would be compressed. There would also be fewer assets available in the market because of the REIT regulation.”

Earlier this year, the firm raised 7.5 billion rupees from domestic investors for IDFC Real Estate Yield Fund. The debt fund targets under-construction residential projects in the country. Currently, three billion rupees have been deployed from the fund across four investments.