Global alternative funds expand their footprint in real estate credit

Global funds are pouring money into structured debt deals with real estate developers in India to take advantage of the huge credit demand. 

While lending from banks and NBFCs remain restricted and alternative domestic capital is still warming up to this opportunity, global investors have been the first movers to take advantage of a multi-year up-cycle in residential real estate. In 2022, ~549MM square feet of residential real estate was sold, highest volume seen in almost a decade.

These investors are lending for different purposes including re-financing old loans, pre approval expenses & rescuing distressed assets, other areas where banks are not allowed to lend. Limited lending available from NBFCs post the IL&FS crises is further exacerbating the credit gap for the real estate sector.

Most active global players including HDFC Capital (managing foreign capital), Ares Management Corporation, PAG, Varde Partners, among others, lent over INR 4,000 crores in the last few transactions. Their funds channel capital from investors across the globe. Over the last 4 years, one of Asia’s largest multi-asset manager PAG, has invested $1.3 billion with property developers of which 90% was alone done in the last 2 years. These funds typically seek a return of ~15%, in dollar terms, on such investments return 15%, which in turn results in 19-20% IRR for the developers.