Mumbai-based real estate fund manager, Piramal Fund Management will now provide construction finance for real estate development projects in India.
In a statement released today, the firm announced that it will be investing INR 11 billion (€156.1 million; $176.5 million) over a period of time in nine construction finance projects.
The projects are a combination of late-stage mid-market residential developments and one commercial office development spread across Mumbai, Delhi and the National Capital Region, Bangalore, Pune and Chennai.
The firm will be investing its own house capital in these projects.
“With construction finance, we have consciously completed the last remaining element in our suite of product offerings,” Khushru Jijina, managing director, Piramal Fund Management said in a statement. “This makes sense for our platform and development partners as we are now able to further our engagement with them and fund the entire project life.”
The firm has been partnering with institutional investors to provide equity as well as structured debt to developers for their real estate projects. Last year, it formed a $500 million joint venture partnership with Canada Pension Plan Investment Board to provide rupee debt financing for residential projects, in what was pegged to be the largest debt financing venture since foreign direct investment was permitted in the country in 2005.
It also raised an INR 5 billion domestic apartment fund, with the capital raised being used to acquire apartment units at discounted prices.
The firm also announced the first close of its maiden offshore real estate fund last November, raising $50 million towards a target of $150 million in equity.
The firm had first announced its intentions to foray into the construction finance market in the last quarter of 2014.
Explaining the rationale behind this strategy, Jijina told PERE: “The developer usually pays off the structured debt once certain project milestones are achieved. It is better for me to continue the same loan based on the construction than get paid off.”
There is a perception of lower risk for lenders which finance the construction phase of a project since land approvals and pre-sales have already been established. As such, lending rates tend to be at least 2 percent to 3 percent less than in the case of structured debt.
Jijina further added that the firm was looking at making additional investments, where the “developers are experienced, projects are profitable and de-risked and the investment is ring-fenced.”