PE funds set sights on alternative assets to prop up realty portfolio

Foreign and domestic private equity funds are diversifying their real estate portfolios by investing in alternative assets within the sector, such as data centers, global capabilities centers, proptech, life sciences, and co-living.

Prominent funds such as Keppel, CPPIB, Brookfield, Kotak Realty Fund, HDFC Capital, Hillhouse Capital, and Symphony Investment Holdings are looking to allocate funds to capitalise on the increasing demand for these asset classes.

The alternative investment segment saw a four-fold increase in deployment in Q1 2023, with $158.2 million invested, and is anticipated to experience higher allocation throughout the year, said a Colliers report.


Piyush Gupta, Managing Director of Capital Markets & Investment Services at Colliers India, said that businesses are adjusting their plans and investors are refining their strategies to select markets and assets that offer strong returns this year.

“While the office sector is experiencing changes, there are abundant opportunities in sectors such as residential, industrial, and alternative assets that are expected to attract stakeholders' interest.” Gupta said.

In uncertain market conditions, portfolio diversification is anticipated to bolster the growth and resilience of many funds.

Drawing Big Money
A few notable recent deals in the segment include Kotak Realty Fund investing $133.6 million in Lalit Group, Symphony Investment Holdings investing $24.6 million in Isprava and Tablespace, and flexible office operator Tablespace securing approximately $300 million from Hillhouse Capital.

HDFC Capital Affordable Real Estate Fund 3 (H-CARE 3) not only invests in affordable housing but also in companies involved in construction technology, fintech, and sustainable tech.

The firm supports the segment through its program called H@ART, which mentors, partners with, and invests in relevant companies. To date, it has allocated capital to 15 real estate-focused prop-tech companies, including Loyalie, Reloy, and Satsure, among others.

"There is a sharp interest in the Proptech segment both from global and domestic players as real estate technology is the need of the hour and cuts across all the verticals like construction, CRM and fintech in the sector," said a fund CEO, who did not wish to be named.

JV Ventures, an alternative investment fund specializing in social infrastructure assets within education, life sciences, healthcare, and purpose-built housing (including worker housing and student housing), plans to increase its capital commitment in this segment.

“There is a large latent demand for such specialised asset classes with a market potential of over $100Bn over the next five years on a "build to hold" basis. Coupled with fast-growing REIT markets providing a robust exit for portfolio build-outs, we see this to be the most exciting growth frontier for us,” said Jasmeet Chhabra, co-founder of JV Ventures.