$250m GCC fund targets India property
Dubai - Star Fund II, part of ArthVeda's Star series of real estate funds, is the first realty fund to be offered in Gulf and other overseas markets.
Global asset management firm ArthVeda Fund Management on Sunday launched Star Fund II with a corpus of $250 million, offering GCC investors an opportunity to reap dividends from India's mid-income residential real estate growth.
Star Fund II, part of ArthVeda's Star series of real estate funds, is the first realty fund to be offered in Gulf and other overseas markets, following the recent amendments to India's FDI (foreign direct investment) policy in the realty segment.
"The mid-income residential segment in India is considered to be the sweet spot offering lower risks and high returns in a relatively short fund life. Thanks to huge demand and absorption of mid-income property across India, investments in this segment have low cyclicity and low average investment ticket size - exactly the opposite of premium residential real estate. That makes Star Fund II a prudent and growth-oriented investment opportunity for global investors," said Bikram Sen, chief executive officer (CEO) of ArthVeda.
Star Fund II has projected an IRR (internal rate of return) of 18 to 21 per cent in dollar terms with maximum fund tenure of 60 months. The fund will have two closures, the first one three months after the launch or upon reaching an investment milestone of $100 million, whichever is early. The second and final closure will be six months from the first closure or upon total commitments to the tune of $250 million, whichever is early.
The fund targeted at institutions, large corporate houses, sovereign wealth funds, family houses and High Net worth Individuals (HNI) in the GCC and other foreign markets has a minimum investment size of $500,000.
Sen said ArthVeda has unparalleled expertise and insights into India realty as the company is part of a leading financial services group with Dewan Housing Finance Corporation Ltd (DHFL), India's second largest private mortgage finance company, as flagship entity.
"We believe that the key to realising best returns in real estate is to invest in a market segment with high demand such as mid-income housing with small, quick turn-around projects. We also believe in diversity of investments in terms of number and geography of projects across metros, Tier-I and Tier-II cities. We also ensure that we enter at right valuation and our funds invest in projects with low land-to-sales value," Sen said.
While Star Fund II is ArthVeda's first overseas fund, its earlier realty funds include a metro and Tier-1 city focused residential Dream Fund I which closed in 2006 with a 17 per cent in Indian rupee CAGR gross return to investors.
In the Star Fund series, Star Fund I was launched in 2012 with focus on mid-income housing and two exits have already been achieved with IRRs in excess of 31 per cent. ArthVeda also launched a low-income household fund this year, Asha Fund, in association with Aadhar Housing Finance Limited (AHFL), a DHFL joint venture with IFC, Washington, which exclusively focuses on mortgage finance for low-income households.
Star Fund II will make 35 to 40 investments across 11 cities in India like Mumbai, Bengaluru, Chennai, Ahmedabad, Kolkata, Coimbatore and Jaipur.
"STAR Fund II will be done in conjunction with DHFL and AHFL, through which ArthVeda has access to a ground force of more than 5,000 personnel and relationship with 300 builders across 736 locations in India," said Sen.
He said that the group collectively lends $350 million across India every month.
He said Star Fund II could be offered in the GCC because of the FDI policy changes made by the federal government of India during last year's national budget session.
The new changes reduced the project size requirements for FDI investments to 20,000 square feet from 50,000 and minimum investment ticket size to $5 million from the earlier $10 million.