We, at Birla Sun Life AMC, are pleased to inform you about the launch and successful mobilization of Rs. 400 crs (till date) of the first Real Estate Fund from the Birla Sun Life Asset Management Company table.

It would be, indeed, our pleasure to have you as our esteemed contributor in this particular venture. Kindly spare some of your precious time to have a look at the mail appended below.

Primary Focus : Why Residential Real Estate
Amongst  the  various  investible  asset  classes  available to an investor  today, in terms of its timing and potential for significant gain, very few can  possibly  parallel  the  opportunity offered by Real Estate. Post the meltdown, realty is one of the strongest sectors in terms of recovery and is expected to sustain this growth over the long term. Despite witnessing corrections, the market continues to expand. This is visible in the spurt in prices which started in the 2nd half of 2009.

The fund will focus upto 75% of its corpus towards residential realty in the initial phases of its investment term

  • Residential space contributes to 80% of total demand potential in this industry
  • Potential for strong pre-sales
  • Increasing demand due to improving economic conditions, better job prospects, affordable housing. Key statistics are proof enough.
  • Safer bet vis-à-vis commercial space

Focus cities : The fund will primarily focus on high potential cities like Mumbai, Bangalore, Chennai, Hyderabad and Pune where there is an increasing demand for real estate.

Rationale for focusing on these cities

  • Established demand coming from locals coupled with a shift in population towards metropolitan cities
  • These cities are key beneficiaries of improving macro-economic factors like political stability, sustained growth in GDP, resilient equity markets et al.

Why invest through a Fund:

  • Diversification: The fund invests across geographies and developers thereby minimizing any concentration risk.
  • Investing at land cost: The fund will invest at the land cost basis. Hence the investor gets entry as a developer
  • Information Advantage: Through the strong network of credible partners, a fund tends to enjoy an information advantage which is limited in the case of an individual
  • Preferential pricing: A fund does enjoy preferential pricing which is not available to individual investors

Expected returns: The fund is targetting an IRR of 20%.

Hurdle rate for profit sharing: The hurdle rate is 10% and the profit sharing is 80:20 with catch up.
Tenure: The Fund shall have an initial term of 6 years commencing from the date of the Initial Closing; provided that, such term may be extended by the Trustee by 2 (two) additional one year periods, as may be recommended by the Investment Manager.

Distribution of proceeds: Example for a 1 yr horizon where capital commitment is 100 and fund realization 200

Indicative drawdown for investment: 20% of committed amount now and balance over a period of 3 yrs. For an investment of Rs. 25 lacs, only Rs. 5 lacs to be paid now. Risk mitigation strategy that the fund proposes to follow: –

Generally, the fund will endeavor to enter at the stage of cost of land thereby downsizing the risk exposure to its investments.  The fund will also endeavor to hold a majority stake in the Investee companies to have adequate control on the operations of the investee company.  Other than having a seat on the Board of Directors of the company, the fund will also have cheque signing rights, Tag & Drag options, affirmative rights etc.  During the tenure of the project/s, the fund will continually monitor and review the progress and if so needed intervene to provide course correction measures.  As for returns from the Investee companies, the fund will generally have preferred rights on the returns too.

Expected closure of the Fund is the 16th of August 2010.