Red Fort Capital Plans $500 Million Real Estate Fund

Red Fort Capital Advisors Pvt., a real estate private equity fund that manages more than $1 billion of Indian assets, plans to raise $500 million next year to invest in homes and offices in Asia’s third-largest economy.

The company has invested about half of its $500 million Red Fort India Real Estate Fund II raised in January this year, Managing Director Subhash Bedi said in an interview in Singapore yesterday.

Raising funds for real estate in India is tough as the nation’s biggest developers fail to rein in record debt as they grapple with high borrowing costs, dwindling sales and banks reluctant to lend to them. That, coupled with the government’s flip-flop on major policy reforms, including foreign direct investment in retail and tax treaties with Mauritius, are confusing foreign investors, Bedi said.

“It is a difficult climate to raise money for India today,” he said. Still, “the fundamental dynamics of Indian real estate haven’t changed, yet there is an aversion of capital to the sector, and with that aversion comes opportunity for the people willing to deploy capital.”

Red Fort, based in New Delhi, is betting the residential markets in Mumbai, Delhi and Bangalore will benefit from demand for homes from the middle class, Bedi said. The company is starting to see some value in retail properties and in central business districts that don’t have an oversupply, he said.

Best Opportunities

“The opportunities in real estate have turned into the best we’ve had in a number of years, including in 2009, when we made a lot of money when nobody wanted to invest because everybody thought the end of the world was here,” Bedi said. “I think this is a better time to invest than even that time.”

Private equity real estate funds made six investments valued at $162 million during the three months ended June, according to data from Venture Intelligence, a research company that tracks private equity, and mergers and acquisitions. That compared with 15 investments valued at $573 million during the March quarter, it said.

“A lot of capital was raised for real estate in 2006 and 2007 and most of that capital hasn’t come back or isn’t going to generate an appropriate return for investors,” Bedi said.

Disappointed Investors

Foreign real estate investors have been disappointed by returns from India, both in private equity and public markets, he said. There are few property investors left in India and they don’t have capital, Bedi said, adding that the decline in deals is not a reflection of a decrease in investor sentiment but more a function of the lack of available capital.

Red Fort has invested 1.2 billion rupees ($21 million) in an office complex in New Delhi by Parsvnath Developers Ltd. and 1.5 billion rupees in a residential project by The 3C Company in Gurgaon, a suburb of New Delhi.

“For those that are willing to invest in this market, 25 percent annualized returns are very easily achieved,” Bedi said.

U.S. investors have not been able to get such returns because they don’t have the appropriate real estate skills that are required to invest in India, he said.

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