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PE players take direct plunge in retail

In a new trend emerging in the Indian private equity (PE) space, retail-focussed funds are planning to go solo and directly buy land and develop it than invest in a project.

business Updated: Jan 27, 2012 01:15 IST
Sachin Dave

In a new trend emerging in the Indian private equity (PE) space, retail-focussed funds are planning to go solo and directly buy land and develop it than invest in a project.

A UK-based commercial realty fund with investments in Mumbai and Bangalore, is said to be in talks to buy land near Bangalore, industry sources said. Another PE fund, an arm of a realty company based out of the UK and listed in Europe, is also in talks for buying two land parcels in tier 2 cities.

Both deals, the first of its kind in the domestic market, would be concluded by March end, sources said.

“For a PE player to directly buy a land parcel and then develop a mall would be a risky proposition but the returns would be much more,” said Ashwin Puri, CEO, Pioneer Property Zone, a realty management company and a joint venture company of Old Mutual Investment Group and ICS Realty. “In such a deal, the PE player buys a land directly and then ties up with a developer to build a mall,” said Puri.

However, some industry trackers remain unsure of the investment model.

“It could be risky for a PE fund to go the land banking way but if they manage to fetch good internal rate of returns (IRR) it would be an interesting model for retail sector where very few PE funds enter,” said the head of a Mumbai-based real estate-focussed fund.

“For PE players there is already a risk in the retail sector so they prefer to take little more risk and go solo,” said Puri.

The IRR in the retail sector—that includes malls in metros and other cities—have fallen to around 14-18% in 2010-11 from 24-25% in 2007-08, industry experts said.

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