Aditya Birla Real Estate Fund heads for liquidation

Aditya Birla Group’s first real estate private equity fund, which was launched in 2010, is finally headed for liquidation.

“With the expiry of its extended life, the fund is in the process of liquidation,” says a note released by the firm to its investors on June 27. It further states that even though the fund has reached out to prospective buyers and market participants to purchase remaining assets on the fund’s portfolio, the response has been tepid.

The fund raised Rs 1,056 crore on its launch in 2010 from domestic investors to primarily deploy capital in Indian residential real estate. According to the note signed by Akshat Pandya, head of real estate investment advisory, Aditya Birla Real Estate Fund-I has returned a total amount of Rs 601 crore to its investors to date by completely exiting four projects and one partially, off its 13 investments.

ABREF’s life tenure was six years, with two one-year extensions, which ended in August 2018. It was a close-ended fund, meaning the capital had to be returned by the end of its life. In August, ABREF notified its investors that due to the global financial crisis and subdued real-estate markets, coupled with a liquidity crunch, the fund had been unable to liquidate its position and return capital to investors. And that they were seeking an extension. 

The fund out of its 13 original investments, has successfully exited from investments such as Ornate Developers’ Ornate Residences (Oshiwara, Mumbai), and Shivam Developers’ Shivam Centrium (Andheri East, Mumbai). Out of the original 13, the fund had invested more money in Mumbai; it also had exposure to Noida (Amrapali Golf Homes), Gurgaon and Chennai.

That said, the fund’s distress earlier reported by an independent valuer, has led to a lower recovery ratio, meaning that when the fund will be liquidated, it would not recover its original principal investment. The fund is expected to be fully liquidated by August 31, 2019.

The letter to the investor does not clarify how the investors will be paid out. “We have been requesting them to find a resolution for a long time, but neither SEBI nor the senior management at the group took cognizance of any of our complaints. By the time this liquidation happens further value erosion will take place,” says an investor of the fund who did not wish to be identified.

Indian residential real estate funds have found it difficult to recover capital from its vintage funds – considering the ongoing liquidity crisis and an inability to refinance projects, indicating that the going is not going to be easier for real estate fund managers anytime soon.

The sentiment ought to change in the coming months, as the country is seeing global investors lining up for offices spaces and commercial real estate investment, particularly in metropolitan cities.