Kotak Realty raises $295m for Indian real estate

The real estate arm of Kotak Investment Advisors has timed its latest fund to co-incide with more realistic return expectations by investors and asking prices by sellers, according to its chief executive.

The Kotak Realty Funds Group, which is a part of Kotak Investment Advisors, has raised $295 million (€218 million) for offshore clients to invest in the country’s property market.

Chief executive S Sriniwasan told Reuters the equity was raised to capitalise on what he described as “increasingly realistic expectations” from investors in terms of returns. He said returns for the fund should be about 25 percent.

He said: “We had a reasonably quiet nine months prior to this because there was a mismatch in terms of valuation expectations versus what the investors were asking for.”

“We believe that gap will get closed out over the next couple of quarters and we do expect to deploy the capital over the next probably 12-18 months,” he added.

The fund is in addition to three vehicles already managed by Kotak. The Kotak Realty Funds also manages the Rs 4.58 billion ($94.8 million; €70 million) Kotak India Real Estate Fund – the fund is now fully invested; the Rs 15.78 billion Kotak Alternative Opportunities India Fund; and the Kotak India Realty Fund – a $217 million offshore vehicle set up to invest in equity and debt real estate securities.

Sriniwasan said investors should feel encouraged by the fall in construction costs in India due to fall in materials such as steel and cement.

Kotak Investment Advisors is a subsidiary of Kotak Mahindra Bank. In April 2008, its private equity arm closed a $440 million growth capital fund.

The Kotak Mahindra group was the first company in India to convert to a bank having formerly been a non-banking financial organisation called Kotak Mahindra Finance. The conversion, along with the name-change happened in February 2003.