Entity-level PE inflow share in Indian real estate rises 17 pct in last two years

In a bid to forge long-term alliance with India real estate developers, private equity (PE) investors have started shifting focus from single project to the multiple numbers of projects of single developer i.e. from a mere project financer to entity-level investment. The recent research by real estate consultancy firm ANAROCK reveals that there has been a 17 per cent rise in the entity-level PE inflow in the Indian realty in last two years. As per the ANAROCK report, from an overall 22 per cent share in 2015 and 2016, entity-level PE investments increased to a share of over 39 per cent during 2017 and 2018. In actual value terms, during 2015 and 2016, nearly $1.1 bn funds were pumped into Indian real estate at the entity-level and in the 2017-2018 period, it was nearly $3.3 bn.

Speaking on the development in Indian real estate sector Shobhit Agarwal, MD & CEO at ANAROCK Capital said, "Entity-level investment is an efficient strategy to get a firmer foothold in the real estate market. It allows a private equity investment firm to not only deploy its capital but also gain synergetic skills in the real estate marketplace. PE firms invariably look for high levels of corporate governance in a real estate development company before deciding to invest in it at an entity level." 

On findings of the ANAROCK report on PE inflow Shobhit Agarwal of ANAROCK Capital said, "From an overall 22 per cent share in 2015 and 2016, entity-level PE investments increased to a share of over 39 per cent during 2017 and 2018, means a rise of around 17 per cent in net entity-level PE share in net PE investment in Indian real estate sector."

Elaborating upon the impact of entity-level PE investment in Indian real estate sector Rakesh Yadav, CMD at Antriksh India Group said, "Project-level investments take a short-term view of capital deployment as they do not necessarily involve partnering with the developer over the long haul. Rather, a PE firm will invest in a developer's project, which involves a lower commitment and is, for that reason, a less risky approach to investing in real estate." Rakesh Yadav further added that entity-level investments, on the other hand, involve multiple projects and require the forging long-term business alliances. They require thorough due diligence of the entity’s financials, as opposed to project-level investments where the PE fund will primarily seek to understand the financials of an individual project.

Speaking on the benefit of entity-level PE investment in the Indian real estate sector Rakesh Yadav of Antriksh India Group said, "There are well-established benefits to entity-level investments. Once a PE firm and its developer partner have established synergy, more options to deploy further funding opens up. In the current cash-crunch scenario of the Indian real estate industry, this is significant as longer-term funding can help the developer address long-term issues rather than merely seek short-term solutions."