Piramal-CDPQ realty deal to provide long trem equity capital in 5 major metros: Ajay Piramal
In an exclusive chat with ET Now, Ajay Piramal, Piramal Enterprises speaks about the realty deal that it strikes with Canada's CDPQ.
Ajay Piramal: There is one gap which was left which was the private equity piece of real estate and that is what this whole deal is about where Ivanhoe Cambridge, which is as you said, a part of CDPQ will put into $250 million and we will invest in five large metropolitan cities of India. We as in Piramal will put anywhere between 25% to 50% in each project.
The reason why we went in at this stage for private equity is that we believe that with demonetisation and with the passing of RERA what has happened is that the A-class developers will actually have bigger opportunities to do projects and the marginal layers which are the C, the D players will actually fade away and prices of land which till now were very high are actually coming down since RERA has come in place as well as demonetisation and therefore there are more and more opportunities for A-class developers and if you have to start from land stage, it takes much longer than a three- to four-year period which is when you would get loans and you need only equity and hence this thing.
ET Now: You mentioned equity. So, I wanted to ask you do you think the appetite for equity deals in the real estate market especially in the residential space is picking up and why residential space, do you think it is because of better return profile as compared to commercial offices and malls.
Ajay Piramal: Residential, actually there was no providers of today private equity in residential space and therefore there was a vacant space. There has been interest in commercial investment by private equity firms but those are investments, where the returns are relatively lower. These are all the LRD or the lease rental discounting where the returns are lower, the risk is lower but here these are relatively higher returns. There is more risk in it and there is a vacant space in it.
ET Now: What will be the contribution of the Piramal Enterprises as part of this joint real estate investment platform, will it be in equal amount $250 million?
Ajay Piramal: As I said, each project we would fund anywhere between 25% to 50% of the project. The balance will be done by CDPQ. But I think more important than the funding is the reason, the contribution of Piramal will come in that the whole team will be managed by Piramal because of the understanding that we have in the space of real estate and CDPQ has also done diligence for more than a year in this space that the deals that we have done, the returns that we have got, the relationships that we have with developers and the team that we have, that is where I think the biggest contribution comes in.
Ajay Piramal: There is one gap which was left which was the private equity piece of real estate and that is what this whole deal is about where Ivanhoe Cambridge, which is as you said, a part of CDPQ will put into $250 million and we will invest in five large metropolitan cities of India. We as in Piramal will put anywhere between 25% to 50% in each project.
The reason why we went in at this stage for private equity is that we believe that with demonetisation and with the passing of RERA what has happened is that the A-class developers will actually have bigger opportunities to do projects and the marginal layers which are the C, the D players will actually fade away and prices of land which till now were very high are actually coming down since RERA has come in place as well as demonetisation and therefore there are more and more opportunities for A-class developers and if you have to start from land stage, it takes much longer than a three- to four-year period which is when you would get loans and you need only equity and hence this thing.
ET Now: You mentioned equity. So, I wanted to ask you do you think the appetite for equity deals in the real estate market especially in the residential space is picking up and why residential space, do you think it is because of better return profile as compared to commercial offices and malls.
Ajay Piramal: Residential, actually there was no providers of today private equity in residential space and therefore there was a vacant space. There has been interest in commercial investment by private equity firms but those are investments, where the returns are relatively lower. These are all the LRD or the lease rental discounting where the returns are lower, the risk is lower but here these are relatively higher returns. There is more risk in it and there is a vacant space in it.
ET Now: What will be the contribution of the Piramal Enterprises as part of this joint real estate investment platform, will it be in equal amount $250 million?
Ajay Piramal: As I said, each project we would fund anywhere between 25% to 50% of the project. The balance will be done by CDPQ. But I think more important than the funding is the reason, the contribution of Piramal will come in that the whole team will be managed by Piramal because of the understanding that we have in the space of real estate and CDPQ has also done diligence for more than a year in this space that the deals that we have done, the returns that we have got, the relationships that we have with developers and the team that we have, that is where I think the biggest contribution comes in.
