As valuations in the real estate sector become unattractive, many real estate focused private equity funds that were suppose to exit from their investments in 2012 have got one-year extension till March 2013 from investors.
“It makes sense for limited partners (LPs) to ask the fund to wait for one year than exit now when the valuations in real estate are not attractive,” said Avinash Gupta, head, financial advisory, Deloitte (India).
Many of the investors or LPs had entered the market after 2005 when foreign direct investment in real estate through PE route was allowed. Following that India saw huge real estate investments in 2007 especially in projects through an investment in special purpose vehicles (SPVs), say industry experts.
“Under the contract signed between investors and PE funds there is always an option to extend investment by one plus one year. So when valuations are not attractive PE funds after consultation with investors can extend the exit by one year, and if it is still not attractive then further one more year,” said Sunil Rohokale, executive director, ASK Investment, a real estate focussed PE firm that recently raised R450 crore.
But many international PE firms have a pressure to exit due to the situation in the US and Europe. “So you will see more of such deals where either developer buying out the PE fund or a domestic PE fund buying out the international one,” added Rohokale.