Equity deals are finding favour with real estate private equity funds (PE) once again. Many real estate funds were doing pure debt deals or structured debt deals with property developers at these deals ensure guaranteed returns. PEs are looking at developers who have city-centric projects with high return prospectus.
The new funds to be launched by the likes of HDFC property fund and Motilal Oswal Real Estate fund would do equity investments apart from debt deals, said consultants. Fund Managers such as Kotak Realty Fund, Apollo Global Management, Sun Area and Hines, among others, are also looking to do equity deals apart from doing debt deals.
The significant reason: In equity deals, they could make an internal rate of return (IRR) of 26 to 27 percent, against pure debt deals where they could make only 17 to 18 percent and mezzanine deals where they could make 22 to 24 percent return.
According to Knight Frank India, equity deals are making a come back also because a lot of developers with good track record do not want to take high cost debt. He added that if funds expect high returns, the only way to generate returns upwards of 20 percent is either to do hybrid debt or go for equity deals. Given the capitalization of real estate companies at this point of time, equity has become an important element for funds.