Most Indian real estate investment managers do not like being reminded of their history. That is especially the case if the queries are about the global financial crisis, and the ensuing few years, when fundraising slowed and foreign investment into the sector receded.

Senior executives at Mumbai-based conglomerate Piramal Enterprises, whose third-party real estate fundraising platform was called Indiareit at the time, admit its vintage funds did not perform well. However, they too would rather focus on how learning from that period has shaped the firm’s business strategy today.

Indeed, over the past few years, Piramal has reassessed and rejigged its financial services business – an important growth driver for a group that started out as a pharmaceutical firm. In 2013, it combined its funds management platform, which focused on equity and mezzanine deployment, and Piramal Finance, its non-banking financial platform doing proprietary lending in the form of structured debt, into one integrated platform.

Today, a large part of Piramal’s real estate business is focused on investing its balance sheet to provide financing across the capital stack to residential and commercial developers. Out of its 286 billion rupee ($4.4 billion; €3.7 billion) total loan book as of the end of June, 250 billion rupees was in real estate. Meanwhile, real estate gross funds under management accounted for a mere 57.5 billion rupees.

Commingled funds will continue to play a limited role, asserts Khushru Jijina, managing director of Piramal Finance. I

Mumbai headquarters: Piramal’s command center

nstead, the focus of its third-party equity fundraising will be on joint venture partnerships and platform deals. That is in keeping with current international investor appetite for real estate in the country. One example is the firm’s $500 million tie-up with the Canadian investor Ivanhoé Cambridge for equity investments announced in February. Piramal also has a debt-focused JV with Canada Pension Plan Investment Board, but no new investments will be made via the partnership – which has already divested its one and only investment – because of lower returns at this point in the cycle. So, real estate debt will be done solely through Piramal’s balance sheet for now.

By 2019, the target is to increase the loan book to 800 billion-900 billion rupees, with 500 billion coming from real estate.

Piramal’s ambitions are rooted in a belief that being providers of perpetual capital – be it equity, senior debt or construction finance – to developers is a foolproof strategy, especially at a time of consolidation in the industry. “Piramal’s most basic USP is that not one single competitive player is doing the entire capital stack like we are,” says Jijina.

Beating competition

Some of the post-crisis restructuring at Piramal has come in response to the changing makeup of the country’s real estate industry over the past few years.

In a July report, property services firm JLL India called 2017 a “red-letter year” for Indian real estate because of the impact of a spate of policy measures introduced in the past 12 months to create transparency and accountability, including the passing of RERA (Real Estate Regulation Act). The demonetization exercise, kick-started last October to remove from circulation all 500 rupee and 1,000 rupee banknotes to crack down on counterfeit cash, made 2016 the worst year since 2010 in terms of new launches and sales of residential projects, according to another real estate consultancy Knight Frank.

Unsurprisingly given the uncertainty, the industry also saw the first signs of a comeback in the real estate secondaries market since the global financial crises. In July, PERE reported about two Mumbai-based investment managers – IL&FS Investment Managers and Urban Infrastructure Venture Capital – exploring secondaries sale of stakes in their 2006-07 vintage funds that have yet to return full capital to LPs.

It is against this backdrop that Piramal wants to create a competitive advantage over its peers. But which other Indian private equity real estate firms are still standing?

HDFC is one name cropping up in PERE’s conversations about Piramal’s biggest competitors today. The long-standing Mumbai-based financial conglomerate offers a similar suite of real estate products, so comparisons are inevitable. “Piramal is trying to create in four years what HDFC has created in 40 years,” says one Mumbai-based investment manager.

Others like Nitin Gupta, managing director and head for India at Macquarie Capital, say what works for Piramal is its unified single-platform approach to the market, in contrast to others like HDFC, which have different verticals handling different strategies.

Describing Piramal’s business before the 2013 rejig, Gupta says it would often happen that two executives, separately handling the firm’s debt and equity products, would end up undercutting each other and pitching their own product to the same developer.

“Khushru has turned around the business quite smartly,” he says. “He has made sure people are held accountable for specific separate accounts, and offering the developer account everything from land funding, commercial loans to apartment funding.”

Gupta says this strategy is helping Piramal win accounts from the competition. Mumbai developer Wadhwa Group, for example, used to be a loyal client of one of its main competitors, but now he says the firm has around 10 billion rupees’ worth of exposure to the developer.

He attributes this success to being nimble-footed in terms of decision-making and capital disbursement.

That is lofty praise. But Piramal’s ease in investing its own proprietary capital is because it is well capitalized. Ajay Piramal, chairman of Piramal Enterprises, belongs to one of Mumbai’s wealthiest families, with Forbes estimating his net worth at $5.6 billion. At an annual general meeting held in August this year, he said the group generated an average revenue growth of 29 percent and average net profit growth of 62 percent over the last five years.

Asked if having the family’s financial backing as a safety net has helped them be more aggressive, Jijina says: “We are a very liquid group. Our ability to therefore act as a perpetual source of capital was important when we started. Today, the financial services business is capable of standing on its own. We have grown not only because we have funds to deploy, but because of the solutions we offer and our turnaround time.”

Skin in the game

Particularly noteworthy to PERE readers is Piramal’s fund management strategy and its institutional partnerships.

The Piramal-Ivanhoé JV is being invested in pure equity transactions (through a 25:75 partnership) as well as preferred equity deals (through a 50:50 setup) with residential developers. Daniel Fournier, chairman and chief executive of

Ivanhoé Cambridge, said at the time of the launch that Piramal’s long experience, track record and strong relationship with Indian developers would play a part in the JV’s success.

“The message has always been: we find this deal interesting enough to put our own money in, and invite you to commit capital alongside. We are not your typical fiduciary that needs your commitment to pursue a strategy”

Vaibhav Rekhi, Piramal Finance

Piramal is targeting 20 -22 percent returns from the equity deals, and between 14-16 percent from preferred equity investments. These numbers, Jijina says, reflect the performance expectations of foreign investors that have reduced from previous years by at least 200 basis points because of market conditions.

The firm’s preference for co-investing its own money alongside institutional third parties is evident in all its partnerships. “The message has always been: we find this deal interesting enough to put our own money in, and invite you to commit capital alongside. We are not your typical fiduciary that needs your commitment to pursue a strategy,” explains Vaibhav Rekhi, partner at Piramal Finance. “For us, the duality of purpose is that we wish to grow our own book as well.”

The firm’s JV with CPPIB, set up in 2014, was also a 50:50 partnership, with each firm initially committing $250 million to provide rupee financing for residential projects across India’s major urban centers.

The JV’s first deal has been exited, generating a 19 percent gross IRR, according to Piramal. However, it is understood a decision was made to not deploy any more capital because the returns that could be generated in the current environment would not reflect the original underwriting at the time of setting up the JV.

One person directly involved in the CPPIB deal tells PERE that ultimately returns became the key issue. “When we had set up the JV, senior debt could generate 18 percent returns,” explains the person on what went wrong. “However, the yield curve compressed very quickly and the returns came down to 15-16 percent on a gross basis. After accounting for taxes and fees, it would end up being quite low. CPPIB felt that the risk-return underwriting they had originally done while committing to the JV did not hold true anymore, and decided to go slow with investments.”

A CPPIB spokesperson declined to comment on the status of the JV.

Rekhi says real estate debt investments are largely being made on a proprietary basis for now, unless Piramal decides to bring in another partner.

Lessons from the GFC

Piramal has also veered away from pursuing traditional commingled funds with a generic investment strategy. Given the contraction in IRRs, Rekhi says the firm did not deem it appropriate to continue launching private equity funds where the gross to net leakage resulted in low double digit returns for retail investors. In 2012-13, the firm did come to market with another offshore vehicle but decided to wrap it up at the first close amount of 2.8 billion rupees.

One industry observer points toward the wanting performance of the pre-crises funds as deterring investors from committing any new capital. According to PERE data, of the 35 India-focused funds raised in 2006-07, only five have been fully liquidated while 17 are partial liquidations.

Piramal has also struggled with its vintage funds’ performance, in terms of liquidation and returns. The 2006-vintage Offshore Fund, a residential-focused opportunistic vehicle that closed on 8.5 billion rupees, is 97 percent exited and the total gross IRR is 8 percent. Meanwhile, its maiden 4.3 billion-rupee domestic fund of the same vintage, launched with the same strategy as the offshore fund, is understood to be 89 percent exited, with a 6.9 percent gross IRR. These are far from opportunistic-type returns.

Piramal’s executives say the firm had a separate team that deployed these funds from 2006 to 2009, and point toward the performance of subsequent funds as a sign of its track record.

The domestic Fund IV, for example, closed on 9.2 billion rupees in 2010 and is currently generating a 24 percent gross return.

Even so, memories from the financial crisis are hard to erase, both for the GPs and LPs. “The era of having commingled funds and a generic theme has gone. I do feel this was where many of the LPs did not make money, and hence they now want more empowerment in the fund,” says Anuj Puri, the former chief of JLL India, who has set up his own residential real estate investment management platform called Anarock.


For Piramal, diversification across product lines and sectors remains the core mantra. After operating in the residential sector, the firm started providing funding against under-construction brownfield commercial projects in 2015. It has never acquired standalone commercial properties, but Jijina doesn’t rule out the possibility of that happening in the future.

The firm is also plotting a JV that will focus on the redevelopment of slums, an area where it has invested previously via its Mumbai Redevelopment Fund as well as through proprietary transactions.

The recent spate of policy changes, including a bankruptcy code and pressure on the public-sector banks to clean up their balance sheets, have also opened the window for distressed buys. Recognizing that, Piramal set up a distressed assets JV with Bain Capital last year.

Additionally, it is also expanding its funding exposure in other non-real estate sectors like roads and renewable energy. According to Jijina, this corporate finance group in addition to housing finance are expected to comprise 50 percent of Piramal’s financial services business in three years, with real estate occupying the remaining half. Having a lending business does pose challenges, not limited to the risk of defaults. Macquarie’s Gupta agrees that taking these concentrated bets has risks.

“The fundamental call that Piramal has taken is that there might be a short-term disruption or there could be a liquidity issue, but the solvency issue should not come through in any portfolio,” he says.

To an outsider, Piramal’s expansive strategy may appear to be doing too much too soon. But Jijina disagrees. “If you are offering everything – from equity to construction finance – you are far safer than if you are offering one single product to the developer. The developer will then ensure that he repays you first because he needs you,” he insists. “Whereas, if you are restricted to providing one form of funding, you will be the last in line standing.”