Kotak Realty Funds is raising $350-million for property joint venture projects in India and stakes in developer projects, to help the latter, who have witnesses a narrowing of their fund sources.
Chief Investment Officer Hari Krishna, who has already invested in a domestic $100-million fund raised, says the new seven-year fund will close next month.
This unit of India's Kotak Mahindra Bank hopes to attract pension funds and other institutional investors, mostly from Europe, with an internal rate of return target of around 25%.
'They need to juice up their returns,' Krishna said of the willingness of investors to dabble in relatively high risk Indian property. Speaking on the sidelines of a conference in Mumbai, Krishna said he was looking to take equity stakes in developers and exit through initial public offerings in three or four years time.
Kotak's first fund joined private equity group Warburg Pincus by taking a $10-million stake Lemontree Hotels, a new firm that is building business hotels across India.
The tactic has also been pursued by the property arm of US investment bank Morgan Stanley, which has bought into three small Indian developers, itching to accumulate land and build at a time when the property market is booming, so much so that many in the industry think a sharp correction is around the corner, even as most struggle to raise funds.
Initial public offerings have become a drawn out process as regulators pick through applications in response to criticisms that firms are overvaluing their land.
And the valuation issue has hit performances by recent debutantes such as Mumbai-listed Akruti Nirman Ltd. And Dev Property Development, listed on London's Alternative Investment Market in January.
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