return of private equity

1. Decoding Private Equity
Real Estate Exits in India
JONES LANG LASALLE INDIA CAPITAL MARKETS REPORT
India Real Estate Market-
Growth Poised
Private Equity Real Estate
Investments in India
Exits in Private Equity
Real Estate in India

2. 2 Private Equity Real Estate Exits in India
ForewordReal estate industry in India, over the last decade has grown and transformed more than it ever has.
Among other factors, a wider participation of institutional private equity (PE) investors in the capital
intensive business beyond the traditional lenders has played a critical role in this change. PE investments
in Indian real estate have penetrated deep into the industry, with both domestic and foreign funds fuelling
the rapid growth of real estate construction in Indian cities. The opening up of the real estate (RE) sector
for Foreign Direct Investment (FDI) in 2005 resulted in transformation of the investment sentiment in the
country. Multiple investment transactions by both domestic and foreign funds happened in the 2005-2008
period. With most of the PE funds structured with a fund life of 5-7 years, coinciding with a typical project
lifecycle, the industry is in a phase that needs monetization of the investments.
the fund managers in the next round of fund raising and also bring the spotlight on ‘investment grade’
headed in.
The theme of the whitepaper which is titled - “Reaping the Returns - Decoding Private Equity Real
Estate Exits in India” aims to gain and share a perspective on a PE fund’s exit proposition. With an aim
to understand the PE involvement in the Indian realty space, this thought piece touches upon the Who,
Where, When, Why and How of the investment and exit strategies of the PE funds as empirically observed
over the last 6 years. As advisors to domestic, foreign and listed private equity funds, LPs, lenders and
developers, and having successfully completed multiple private equity exits, we have tried to incorporate
Sincerely,
Shobhit Agarwal
Jones Lang LaSalle - India

3. Private Equity Real Estate Exits in India 3
Content
Looking Forward
Major Channels of Financing
Real Estate Development in India
India Real Estate Market-
Growth Poised
Private Equity Real Estate
Investments in India
Exits in Private Equity Real
Estate in India

4. 4 Private Equity Real Estate Exits in India
Investment Grade Real Estate Under Construction (2Q11)
COMMERCIAL 40.3 USD billion
30.1 USD billion
Retail 10.2 USD billion
RESIDENTIAL 119.8 USD billion
TOTAL 160.1 USD billion
Residential
75% 25% 75%
Retail
25%
India Real
Estate Market -
Growth Poised
India Real Estate Market - Growth Poised
value of investment grade real estate in
Figure 1: Value of Indian Real Estate Under Construction
1
2
1
2
to medium term ensuring interest by global
returns.

5. Private Equity Real Estate Exits in India 5
Major Channels
of Financing
Real Estate
Development in
India
Major Channels of Financing Real Estate
Development in India

6. Figure 3: Cost of Finance by Various Finance Options
Figure 2: Major Channels of Financing Real Estate Development in India
REIT/REMF/ AIF
IPO IPO IPO IPO
PE Funds PE Funds PE Funds PE Funds
IPO
Private Lending Private Lending Private Lending Private Lending Private Lending
Pre-2005 2005-2007 2008-2009 2010-2011 2012F-2013F
INCREASING TRANSPARENCY
Average
35%
30%
25%
20%
15%
10%
Pre 2005
Equity
Means & Cost of Financing

7. Private Equity Real Estate Exits in India 7
Private Equity
Real Estate
Investments in
India
Private Equity Real Estate Investments in India
Regulatory Impact
to real estate loans and banning lending for
FDI regulations for real estate investments
The private equity funding gained notable momentum during the
crisis of 2008-09 on the back of stringent lending norms set by the
participants in to the market has also brought in a much disciplined
approach towards construction and delivery of the projects along
with better transparency in to the market.
Figure 4: Sector-Wise Private Equity Investments in India -
By Value (2005-2010)
19%
Automotive 2%
Textile & Apparels 3%
4%
4%
IT & ITES 7% 8%
12%
Real Estate &
Management 27%
14%

8. Investment Trend 2005-2008
to foreign investments a large number of
developers involved in multiple large FDI
of interest from PE investors as developers
investment interest from investors out of
Figure 5: Private Equity Investments in Indian Real Estate -
By Value (2005-2011)
7
5
4
3
2
1
201120102007
0

9. Private Equity Real Estate Exits in India
Investment Trend 2009-2011
investors.
were certain ambiguities in the interpretation of the conditions
Extending the 3 years lock-in requirement to the entire
investment rather than the minimum capitalization amount
or introducing minimum alternate tax on SEZs do not give
of certain policies. A lot of clarity is required in order to provide
a more stable regulatory and less onerous platform for boosting
FDI investments in the segment.

10. 10 Private Equity Real Estate Exits in India
Figure 8: India Private Equity Real Estate Milestones
2011
2010
2009
2008
2007
2006
2005
1999
1998
Road Ahead
London AIM listing
popular for RE
Developers
redeemable instruments
foreign investments
estate
Press note 3 on
FDI in Industrial
REMF draft
guidelines issued
Proposed Alternate Investment Funds
investments and maximum DCF on exits

11. Private Equity Real Estate Exits in India 11
Exits in Private
Equity Real
Estate in India
Exits in Private Equity Real Estate in India
While some fund managers
prefer partnering with
developers with whom they
of developer track record and
execution capabilities while
evaluating a potential deal.
Private equity investments in real estate
available to fund managers and analyse
Drivers for Exit
Private Equity Investing is all about
Getting Out - Anonymous

12. 12 Private Equity Real Estate Exits in India
Completion of Project Lifecycle•
Market-driven Opportunistic Exits•
Distressed Sales•
Fund Raising Activities•
Completion of Fund Life•

13. Private Equity Real Estate Exits in India 13
•
Promoter Buybacks:•
Public Market Sale/ IPOs:•
Third Party Exits:•
Sale of GP Interest:•
Trend Watch: The role of NBFCs - While NBFCs have been serious competitors to private equity funds as a
in 2009. NBFC funding rates were as low as 15-16% p.a until the end of 2010 and have shot to 19-22% p.a in
Mode of Exits

14. 14 Private Equity Real Estate Exits in India
“The general regulatory / tax
environment is getting harder
for exits to take place smoothly.
For e.g. change in regulation on
the 3 year lock-in period to the
entire capitalization (rather than
just the minimum capitalization)
is one of the biggest dampener
to PE exits from the sector.”
- Mr. Abhishek Goenka, BMR Advisors
“A key regulatory challenge
is the 3 year lock-in period
which restricts buy back within
3 years of investment. The
intention behind lock-in is to
ensure capital is available for
development and not trading.
should be permitted to be used
the 3 year period or otherwise.
RBI should restrict only outside
capital being used to repay the
investor.”
- Mr. Sriniwasan, Kotak Realty Fund
Exits - Challenges

15. Private Equity Real Estate Exits in India 15
Challenges Key Concerns Impact
FDI
Conditions
approvals
of partners dispute
Put/Call
Options
permissibility
Lesser Exit
Mechanisms
for
Completed
Assets
Partner
Issues
Currency
Risk
3
Taxation
Mauritius.
Figure 7: Key Challenges and its Impact on PE Exits in Real Estate
3

16. India has Witnessed USD 3.2 bn4 of Investor Exits Over 80 Deals from the RE Sector in the Last 4 Years
4.5%5
Exit by Source of Funds
Larger Exit Values by Offshore Funds Largely Due to Higher
Ticket Size
4
5Preqin data base

17. Private Equity Real Estate Exits in India 17
Mode of Exits
Heavy Dependence on Put Options / Promoter Buy Backs for Exit
Exits by Asset Class
Residential Focus - A Post Recession Paradigm Shift
Figure 10: Share of PE Exits by Asset Class
1%
2%
1%
4% 4%
4%
2%
7%
22%
Entity
Hotel
Land
Portfolio
Residential
Retail

18. Entity vs. Project Level Exits
Higher Preference for Project Level Transactions
Figure 14: Entity vs Project Level Exits
Entity Level
Exits by Geography
of PE Funds
Location of Decision Making - A Critical Factor?
Figure 13: Share of PE Exits by Fund Manager Domicile
Number of Exits
LaSalle Survey
Foreign
74%

19. Private Equity Real Estate Exits in India
Reaping the Returns
Figure 16: PE Exit Multiple by Asset Class Figure 17: PE Exit Multiple by City
2.50
5.00
4.50
4.00
3.50
3.00
2.00
1.50
1.00
0.50
1.40
1.20
1.00
0.40
0.20

20. 20 Private Equity Real Estate Exits in India
Looking
Forward
Looking Forward
• Local Market Expertise and Stable Asset Management Teams will be Valued -
• Direct Investment by LPs or Separate Account Structure -
• Smaller Fund Sizes and Niche Funds -
• Increased Execution Oversight -
• Third Party Exits will Gain Momentum -
• Entry of REITs/AIFs and a New Class of Investors -

21. Private Equity Real Estate Exits in India 21
is dependent on Indian savings and
India real estate story.

22. 22 Private Equity Real Estate Exits in India
Contribution by
Authors
Shashank Narayan Devi ShankarHariharan Ganesan
Ujwala Rao Himadri Mayank Ashutosh Limaye

23. Private Equity Real Estate Exits in India 23
Ashutosh Limaye Himadri Mayank
AHMEDABAD
BANGALORE
CHANDIGARH
CHENNAI
COIMBATORE
DELHI
GURGAON
HYDERABAD
KOCHI
KOLKATA
MUMBAI
PUNE
About Jones Lang LaSalle
About Jones Lang LaSalle India

24. IndiaReit:
Omkar:
Rajesh Builders:
Watermark Residency:
Phoenix Forever:
Heinz:
For handling complexities
of real estate investments,
our clients said,
you were a simple
choice
and over USD 2.5 billion in last 5 years in India.
Omkar:
Patel Realty:
Kotak Realty Fund:
Paramount Constructions:
Adarsh Developers:
Ambience:
Mafatlal Industries Limited: