The fund is being set up as an alternate investment fund (AIF Category II) registered with stock market regulator Securities and Exchange Board of India (SEBI). MORE expects to achieve first close of this new fund by March and conclude total fundraising in the next 6-9 months.
MORE, so far, has invested capital in the real estate sector through four real estate funds, portfolio management service (PMS) and non-convertible debentures (NCD) investments. Currently, MORE’s cumulative assets under management stands at over Rs 3,700 crore spread across its four real estate funds, PMS and NCD investments.
MORE is part of Motilal Oswal Private Equity (MOPE), which is the alternative investments platform of Motilal Oswal Financial Services with cumulative AUM of over Rs 7,000 crore.
“Our real estate private equity business has scaled up over the last decade. We believe that the sector is undergoing a structural shift and is at the cusp of a transformation. We will continue to grow our presence in this space through value investing over the coming years,” said Vishal Tulsyan, MD & CEO, MOPE
While the last three funds–IREF II, IREF III and IREF IV–focused on early-stage investments, IREF V will be focussing on extending construction finance to real estate projects in a post-approvals stage. The new fund plans to deploy the capital in mid-income and affordable residential projects across the top seven cities in India including Mumbai, Delhi-NCR, Pune, Bangalore, Chennai, Hyderabad and Ahmedabad. It will also be investing in commercial projects selectively.
“The last few years have been challenging for the industry, which has been grappling with a prolonged slump due to the impact of regulatory reforms and the liquidity crisis created by IL&FS starting September 2018. With NBFCs putting brakes on new lending and banks becoming selective, there has been a huge gap in construction finance available in the sector over the last two years,” said Sharad Mittal, Director & CEO of MORE.
However, according to him, in the last six months following the nationwide lockdown, we have seen a strong recovery in demand fuelled by multi-decade low mortgage rates, five-year stagnated prices, reducing demand-supply gap in inventory, government support through stamp duty reductions and the genuine need of staying in an owned home during the COVID pandemic.
He believes these factors will lead to a resurgence in residential demand over the next few years and this is an opportune time to launch our next fund which will focus on construction finance and post-approval funding.
The new fund IREF V will focus on structured debt investments with established developers and undertake 12-15 transactions of Rs 60 crore to Rs 80 crore each.
With the launch of this fund, MORE will provide a full financial solution to their developer partners; early-stage financing through their earlier funds and post approval stage and construction financing through this new fund.
The Indian market has typically seen private equity financing in the early stages of the project at land and approvals stage. However, due to the liquidity crunch that the sector is witnessing over the last two years, MORE believes that there is a funding gap even in the post-approval stage.
MORE’s second fund, IREF II achieved final close in 2015 and has till date made 14 investments and secured 11 exits at an investment level returns of 21.3%. The fund has returned nearly 126% of the money back to its investors.
MORE’s third fund, IREF III, which achieved its final close in 2017, has till date made 24 investments and secured six exits at an investment level returns of 22.4%. The fund has returned 41% of the money back to its investors.
MORE’s fourth fund, IREF IV, which achieved its final close in 2020, is currently under deployment and has till date made 10 investments.
“In our earlier funds, our investment strategy has been to partner with established developers in early-stage investments through structured debt in their mid-income/ affordable housing projects. We have focused more on IT cities and largely stayed out of Mumbai and Delhi NCR due to the high leverage in these cities. This strategy has worked well for us over the last few years. In our upcoming fund however, the focus will be to provide construction finance in post approval projects. We shall continue to work with our preferred partners and capitalize on our existing strategy,” Mittal added.
The private equity firm has built strong relationships with their development partners in each micro-market. This is reflected through the multiple transactions it has executed with these developers across its last three funds over the past four years. For instance, it has made 11 investments in Casagrand Group, seven in ATS Group, three in Shriram Properties, and two in Kolte-Patil Developers.