By Raghavendra Kamath
High Net Worth Individuals (HNI) are showing renewed interest in lending to property developers as home sales pick up in major cities and prices start to rise.
Unlike in the past, HNIs now seek to lend to developers in a structured way so that their investments are well covered.
Shobhit Agarwal, managing director of Anarock Capital, said such deals have been gaining momentum lately, given the upturn in residential sales. Agarwal has advised half a dozen such transactions in the recent past. In a recent deal in Mumbai he is aware of, the developer raised Rs 50 crore in three days from a group of HNIs. “Previously, it was impossible to raise this kind of money in such a short time,” Agarwal said.
However, Agarwal added that returns for investors on structured debt transactions have fallen from 24-30% in the pre-Covid period to 16-20% now, given the increase in liquidity in the market and the lower margins in real estate projects. “Money only goes to credible players,” he said, adding that HNI is now looking to lend Rs 15-50 crore to a developer, up from Rs 50-150 crore earlier, while they seek to diversify risk.
Earnnest.me, a platform set up by former KKR director Ashish Khandelia that allows investors to invest through senior secured debt opportunities, recently funded by a developer in Chennai, has seen the participation of many HNI.
Senior secured debt is a kind of debt in which it is backed by an asset given as collateral and the lender has priority over the cash flows of the borrowing entity.
“There is growing interest among HNIs and family offices in higher yielding debt ideas yielding 14-15%. Institutional investors have been playing this theme for a few years and have invested over $2 billion. With a residential rebound now more visible, domestic capital is also looking to participate,” Khandelia said.
The platform allows investors to place as little as Rs 10 lakh against the minimum investment threshold of Rs 1 crore in alternative investment funds.
Ankur Srivastava, Chairman of GenReal Property Advisers, which advises HNIs on real estate investments, said: “The structured real estate debt market is also changing to meet investors’ needs and perceptions. After the IBC, the applicability of the structure, the collateral coverage and the quality are now scrutinized very closely. Additionally, the track record of the fund manager is a deciding factor for investors. Finally, technology is also used to improve reporting, management and compliance standards. »
Srivastava said investors are happy with the returns in the mid-teens provided the structure is secure, the value of the collateral is twice as high and the cash flow from the project is live.
“Investors are more interested in minimizing risk than maximizing returns,” he said.
Kaushik Desai, managing partner, Walton Street India, agrees. He said: “Investors are risk averse. It’s not a mad rush. They look at the backgrounds of managers and developers before issuing checks,” he said.
Walton Street Blacksoil Real Estate Debt Fund II is raising Rs 500 crore, 90% of which has been raised, he said. Desai said previous investors only looked at returns, but now they’re also looking at risk-reward ratios. “Investors are looking at the level of risk they’re taking and the returns they’re getting,” he said.
Sanjay Dutt, managing director of Tata Realty & Infrastructure, said family offices and HNIs have increasingly turned to real estate over the past 12 months. “It all started with distressed deals that now go to reputable developers where the upside is visible in the next three years,” Dutt said, adding that HNIs and family offices want to do last-mile funding.
“The developers think that since the sales are happening, they can pay extra and finish the projects,” he said. However, Dutt clarified that his housing arm only raises money from institutions.