ASK Real Estate Special Opportunities Fund - Portfolio I (ASK Realty Fund)

ASK Real Estate Special Opportunities Fund - Portfolio I (ASK Realty Fund) is a real-estate private equity fund floated by ASK Investment Holdings (of the ASK group which is into wealth management). This fund, which seeks to collect about Rs 500 crore, would predominantly invest in residential real-estate projects in the top seven cities in the country.
Objective

The fund, open only for resident Indians, aims at providing diversification across various regions and business segments within real-estate without the hassles of owning and maintaining such estate. It would seek to provide compounded annual returns of 25 per cent over the five-year tenure of the fund.

The realty fund has a minimum ticket size of Rs 25 lakh, with additional investment allowed in multiples of Rs 5 lakh. The fund has a drawdown period of 24 months; in other words it would gradually deploy funds in projects across this period. There is an entry load of 2 per cent for investments up to Rs 5 crore.

Some of the unique features of the fund include staggered collection of funds to ease the burden of investors and also avoid unnecessary holding of cash by the fund. The fund would collect 20 per cent on application and the remaining (over every quarter or half-year) amount over the next two years.

Further, even as the there is a lock-in period, the fund would provide a liquidity window at the end of three years to allow investors to cash-out 10 per cent of their capital contribution. This provides an opportunity for those investors looking at liquidity. The fund would not also make any reinvestments. In other words, once a project is complete, the fund would return the distributable surplus to investors (in the form of dividend or capital gains) and would not redeploy the same.

ASK Realty Fund has chosen Mumbai, Bangalore, Chennai, Pune, Delhi, Hyderabad and Kolkata (in that order) to deploy its funds. According to the management, the fund does not see much opportunity at the “land buying” stage as enough land has been aggregated by developers in the last two-three years.

The fund, therefore, sees opportunities at the development stage in those residential projects where the plan approvals are in place and the construction is about to start. Another key strategy of the fund is to enter projects at “asset level” rather than “holding company level”. That is, the fund would invest only in specific projects and not in a real-estate company.

This strategy, according to the fund, would provide easier exit opportunities, as such projects are self-liquidating once the units are sold; investing in a company would entail waiting for right exit opportunities such as exit at the time of an IPO.

The fund would not look at investments in special economic zones or townships as these tend to have longer gestation and would not suit the fund’s five-year tenure. As to its strategy of concentrating in residential projects only in the top cities, the management feels that 50 per cent of the top spends in infrastructure under the Jawaharlal Nehru National Urban Renewal Mission would be in these top seven cities.

Further, given the talent pool available in these cities, creation of jobs on an economic revival can be expected to be faster in these cities. The fund also prefers to invest in projects of developers in these cities, whose capabilities, quality of work and scale may be far superior to builders in smaller towns.

While 70 per cent of the funds would be deployed in residential projects of the nature mentioned above, the fund may also invest the remaining 30 per cent in completed fixed-income generating office space. The fund will not invest in commercial space that is under construction or not occupied.

This investment is expected to deliver more regular returns over the tenure of the fund. The fund may also explore more specific opportunities such as redevelopment projects by housing societies (such as those in Mumbai) or sale and leaseback of old buildings located in Central Business Districts, after some renovation is carried out. Such renovation may be done with a view to improve the working conditions/amenities in the building, thereby improving rental yields.