Red Fort seeks repeat success with $500m third fund

The New Delhi-based private equity real estate firm is reportedly eying a third Indian real estate opportunity fund, having already invested half of the capital it raised for its second fund in January.

Just six months after raising $500 million for its second real estate opportunity fund, New Delhi-based private equity real estate firm Red Fort Capital has begun working up plans for a another effort.

Red Fort’s managing director Subhash Bedi told news service Bloomberg that the firm already had invested approximately half its Red Fort India Real Estate Fund II, which it closed in January.

Typically firms must pass a specific invested percentage hurdle – usually between 70 percent and 80 percent – before they can capital raise for sequel funds. Nonetheless, Bloomberg reported how the third fund could be introduced next year.

Bedi said the current climate for Indian real estate capital raising had been made challenging by a combination of legacy debt issues among local developers and confusing policy changes regarding foreign direct investment and India’s tax treaty with Mauritius. But he told the news service that India’s real estate market remained attractive for well-capitalised platforms.

Bedi said that, while Red Fort had performed well by investing in India’s affordable housing, the firm could shift its strategy to encompass middle-class housing, retail properties and other commercial properties in certain central business districts.

Red Fort has been in the vanguard of India’s second wave of private real estate investing vehicles. Following a poor performance from the first wave, which followed the Indian government permitting foreign direct investment in 2005, few sequel vehicles were entertained by investors for a number of years.

But a strong performance by Red Fort’s first $400 million fund, which in January was projecting IRRs of 22 percent, has enticed investors from the US, Europe, Asia and the Middle East to repeat commitments for its second offering, and the omens look promising for a third.
Other Indian private equity real estate platforms, including Kotak Realty Advisors and Infrastructure Development Finance Company, also have come to market with new funds targeting international investors. In addition, earlier this month, Dutch pension services giant APG and Copenhagen-based real estate fund of funds manager Sparinvest Property Investors entered into a club investment with Mumbai-based Godrej Properties.

Despite the mini-resurgence in new vehicles, investment by private equity real estate groups in India remains relatively low. According to Indian private equity data specialist Venture Intelligence, just $162 million in seven transactions was disclosed during the last quarter – less than half the 18 investments made in the same period last year. Those to have deployed capital include Morgan Stanley Real Estate Investing and Walton Street Capital.