ASIA NEWS: Bombay's bursting bubble

Last month's entity level investment by SUN-Apollo into Mumbai-based developer Keystone Realtors was regarded by the market as systemic of what India's development community can expect from private equity investors these days.

The joint venture between New York-based AREA Property Partners and India investment firm SUN Group made an undisclosed entity investment in Keystone on behalf of its $630 million SUN-Apollo India Real Estate Fund. The deal was the JVs first this year and its first in the city.

SUN-Apollo, which saw a change at the helm in April when managing director and chief executive officer Chetan Davé stepped down to be replaced by Prakash Kalothia, has been cautious since holding a final close. Davé, who has remained with SUN-Apollo as an advisor, was believed to have led the deal before he relinquished his role.

According to a source close to the deal, the time was right for Apollo to take the plunge in Mumbai.

Mumbai: SUN-Apollo makes it foray

“[SUN-Apollo] had zero exposure to Mumbai until now,” the source said. “It is the largest market in the country but for the last two years SUN-Apollo avoided the city because of bubble-like pricing.” No financial details were revealed but market reports suggest the JV fund bought a 49 percent stake in Keystone. SUN-Apollo declined to comment.

Vaibhav Rekhi, director at Savills Capital Partners, said entity-level investments into Indian developers from private equity real estate firms are likely to be the only way Indian developers can increase their liquidity at a time of falling direct investment demand and minimal bank finance.

“Normally entity-level transactions happen at a pre-initial public offering stage but I don't think many entities will be able to monetise anytime soon beyond selling down their assets,” he said.

The deal with Keystone, also known as Rustomjee Group, is expected to lead to SUN-Apollo investing in its current and future projects. In doing so, the firm will be able to benefit from two types of income streams.

“For the investor, this is a way of making sure that your capital is smarter because it gives you a say in the underwriting of a number of deals rather than putting all your eggs into one basket,” Rekhi said.

The SUN-Apollo India Real Estate Fund closed in January 2007 after raising $630 million from US, European and Middle Eastern institutional investors and other investment houses.

Previous investments made by the fund include joint venture positions in The Gateway, a 4.8 million-square-foot, mixed-use scheme in Chennai, and in Point Indu, a 7.8 million-square-foot development near Hyderabad International Airport. Both these schemes are in government assisted special economic zones.