Morgan Stanley invests $90mn in Mumbai project.Posted on : 19 Mar, 2012
Morgan Stanley Real Estate Investing, or MSREI, has invested about $90 million (around Rs.450 crore) in a project of Sheth Developers Pvt. Ltd primarily to help the real estate firm refinance debt it had taken to buy land in Mumbai, said two people familiar with the development.
A large residential development is coming up on the 18-acre land in suburban Andheri area. Sheth had bought the land from Borosil Glass Works for about Rs.875 crore in 2010.
The Sheth transaction is significant for Morgan Stanley, which hadn’t invested in India since November 2007 after it put in about $130 million in Pune-based developer Panchshil Realty.
Overall, Morgan Stanley has invested around $840 million across 10 deals in India so far.
“The Morgan Stanley-Sheth transaction was done in a part-equity, part-debt kind of investment arrangement,” said one of the two persons mentioned above. “The Borosil land project is coming up well and sales have been strong. The project will be developed in phases, totally generating revenues of about Rs.3,500 crore over a period of four years.”
Text messages sent to senior officials in Sheth Developers were not answered.
Private equity (PE) funds are increasingly bailing out real estate developers from tight situations, including on payments for expensive land purchases, repayments and refinancing of debt, besides financing project development, said real estate analysts.
Several developers, especially in Mumbai and the Delhi-National Capital Region, are looking to raise capital from PE funds for individual projects to reduce the debt component in the project cost.
Bangalore-based RMZ Corp. raised $100 million from Baring Private Equity Partners this year through a special purpose vehicle (SPV) designed to acquire properties. RMZ has already used a part of the investment to acquire an office space project of 6 million sq ft. in the city. Raj Menda, managing director of RMZ, one of the largest office space developers in the country, said the SPV structure helps because it can receive funding from more than one PE fund. A spokesperson for Baring Private Equity declined to comment.
In another transaction, in February, Kotak Realty Fund invested Rs.150 crore in an SPV to help Sunteck Realty Ltd buy land in suburban Mumbai, again in a structured combination of debt and equity. The money helped the developer buy a 16-acre land parcel for Rs.300 crore.
The real estate sector is experiencing a round of consolidation, with investors keeping a close eye on the kind of assets they are funding, said Rajiv Sahni, partner (real estate practice), Ernst and Young, a consultancy. “Only if they feel secure about the asset quality are they committing to them,” he said.
In 2011, PE funds and non-banking financial companies (NBFCs) together invested $1.43 billion in India’s real estate sector, according to VCCEdge, a research firm that tracks investments. In 2010, PE funds and NBFCs invested $1.3 billion in the sector.
SOURCE: Accomodation Times.