HDFC Property Fund plans to raise $500-million real estate offshore fund by end-2012

BANGALORE: The private equity arm of Housing Development Finance Corporation, HDFC Property Fund, plans to raise a $500-million real estate off shore fund by the end of 2012.

The company is in talks with sovereign funds, including Government of Singapore Investment Corporation (GIC) and Qatar Investment Authority, to raise the capital. It is also talking to Japanese and US investors, a person having direct knowledge of the fund raising said, requesting anonymity.

"HDFC is targeting a single close. The firm is in talks with limited partners and fund of funds to raise the capital," he said.

GIC, Qatar Investment Authority and HDFC Property Fund did not respond to emailed queries sent by ET.

The fund has a target net internal rate of return of over 20%. It will primarily invest in redevelopment of residential projects and city centric commercial development across major metros, including Chennai, Pune, Bangalore, Mumbai and Delhi. Currently, there are around half-a-dozen real estate focussed funds, which are in the market trying to mop up fresh or follow-up funds to invest in real estate sector in the country. These include JPMorgan Asset Management, Kotak Realty Fund, IDFC, IL&FS and ASK Group.

"It is very challenging to raise offshore fund due to current macro economic environment," said Ambar Maheshwari, managing director, corporate finance at Jones Lang LaSalle. "Funds of funds are waiting to see the return on investment before deciding their future course of action as not many funds have performed as per expectation."

HDFC forayed into realty private equity business in 2005, with HDFC Property Fund. Currently, HDFC Venture Capital Ltd (HVCL), manages two domestic funds - 1,000-crore HDFC India Real Estate Fund and IT Corridor Fund with a corpus of 464 crore. HDFC also has $750 million offshore fund HIREF International. HDFC's domestic fund has made 18 investments, of which it had fully exited from nine investments and partially exited from three.