Purpose
– The purpose of this paper is to understand the trends and contribution of private equity (PE) investors in real estate development in India because the real estate sector in India had witnessed significant investments from PE firms in recent years.
Design/methodology/approach
– The study focused on residential segment of real estate development, as it is the largest among all the segments. Two types of analyses have been done in this paper: first was to compare residential projects with PE investment with those that did not have any PE investment. The results were based on an analysis of 453 residential projects. The second was an analysis of only those projects that had PE investment. This paper studied if there were differences in investment patterns between domestic and foreign PE investors, and dedicated and diversified PE investors.
Findings
– Projects with PE investment were larger, as compared to projects that did not have any PE investment. The results of this paper also showed that PE firms preferred to invest with developers who had significant experience in undertaking larger-sized projects. PE investments significantly happened in projects that were located in metro cities. While PE firms as a whole preferred to invest in project mode, domestic investors were more inclined to invest in a project structure as compared to foreign PE firms. Though foreign PE firms invested more amounts per deal on average, there was a negative relationship between foreign PE firms and the extent of their shareholding in the investment.
Practical implications
– Encouraging PE investment in real estate projects would contribute toward to increasing the transparency in the sector. Strengthening the domestic PE industry would increase investment flow for real estate projects. PE investors who are able to add value to their investments are able to obtain higher shareholding.
Originality/value
– Empirical research on Indian real estate industry is scarce because of the lack of transparency and availability of reliable data. This is one of the initial studies on the Indian real estate sector based on a robust dataset.
Subject area
Infrastructure finance.
Study level/applicability
II MBA/Executive MBA (Project Finance, Infrastructure Finance).
Case overview
It is generally believed that the economy of India is on the threshold of achieving significant growth in the coming years. The availability of adequate infrastructure facility will play a key role in realizing this growth potential. To accelerate the process of creating infrastructure capacity, the Government of India has opened up many infrastructure sectors for private sector investment. Creation of international standard airport facilities is an important component of such new infrastructure creation. This case study presents the initial development and financing closure of Bengaluru International Airport Limited (BIAL), the first major private sector airport in India. In retrospect, it is generally felt that BIAL was an important milestone in the privatization of airports in India. The blueprint for the greenfield PPP airport in Hyderabad was closely modelled on the BIAL project. The experience gained in the development of BIAL also played a major role in subsequent brownfield PPP airport expansion projects in Mumbai and Delhi.
Expected learning outcomes
The goal of this case study is to illustrate the complexities that exist in the process of infrastructure development and financing. This following are the expected learning outcomes:
The importance of using an appropriate project structure.
The prevalence of early returns to project sponsors as compared to lenders.
The process of achieving financial closure.
Analyzing project risks and returns.
Supplementary materials
Teaching notes.
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