Description
This is a presentation explaining funding through private equity, Different Types of Funding available in Real Estate, Deal Structures for Private Equity Partnership, Deal Structuring Considerations, Key Points to discuss and negotiate in a Private Equity Partnership.
Private Equity Funding
Funding through Private Equity
•
Private Equity is the only form of funding which truly participates in project risk along
with the developer
• Private Equity Funds can enter at any stage of a project but RBI prohibits them to come in after a certain stage in India
•
Globally the largest source of real estate financing comes from Real Estate Funds,
Private Equity Funds and Hedge Funds
Different Types of Funding available in Real Estate
Type of funding
• • Internal accruals Pre-sale / customer advances
Issues
Limit to growth Could be selling out ‘too early’ Could dry up in market downturn ‘Over leveraging’ risk in downturn Capital flight if market turns Control; what is the ‘end-game’?
• • • •
Debt Individual high net worth investors Strategic investors Private Equity
Higher governance standards
Deal Structures for Private Equity Partnership
1
Stake in Holding Company
2
Concept SPV
3
Project Partnership
4
Late Stage Buyout
• Investor takes a strategic stake in the company • The investment horizon of the investor is longer • There is a commitment from the investor for investment into each subsequent project
• A new company – SPV is formed for executing particular types of projects • The plans of the company are firmed up in Year 0 in terms of the number of projects that it will execute • Equity can flow in at one go or in a staggered fashion
• A new company is formed for executing one particular project only • The equity partner takes a stake based on the valuation of the standalone project • The equity flows in at one go at the beginning of the partnership
• An institutional investor comes in and buys out a property after construction has begun • Most such buyouts occur after completion of 3040% construction • Mostly for commercial properties where rentals are then earned by the investor
Deal Structuring Considerations
• • •
Exit scenarios Nature of returns to be generated and leakage required Type of deal
– – – Nature of project – residential, commercial etc. Deal Structure - investment in Holdco/existing company/SPV Purchase of shares/asset/construction agreement/land-owner rights – combination thereof
• • • •
Nature of cash-flows which would arise Debt equity mix Restructuring flexibility Investment instruments
– Equity and equity linked instruments
• • Equity/preference shares
– similar / differential rights
Compulsorily / optionally convertible debentures (OCDs)
–
Non convertibles/debt
•
Time period of investment
Key Points to discuss and negotiate in a Private Equity Partnership
• • • • • •
Understanding of classes of Equity Shares and Convertible Instruments Structuring of Distribution of Returns Default Scenarios Board of Directors Bank Accounts of the Company Preferred Return – – Hard Guarantee of Returns Soft Guarantee
• •
PUT / CALL Options and any Pledge of Shares Business Plan and Performance Indicators, Completion Guarantees
•
•
Future Funding Patterns
Veto Rights of Investor
Key Messages for Success in Private Equity Partnership
•
True Alignment – Exit Oriented Financial Alignment.
•
•
Building Transparency for every phase: Land Acquisition, Development and Exit
Accelerated Delivery is Key: Don’t cut corners. Retain the right advisors - from Construction project management, financial structuring, to partners with experience in large scale developments.
•
Focus on Maximizing Value Creation by optimizing financial Leverage available with this new source of capital.
Critical Developer Traits for Success
•
Vision of the Developer
•
• • • •
Transparency and Value Driven
Ability to Identify and Obtain prime property Knowledge – Project Specific, Industry & Over all Conviction and Tenacity Quality Real Estate
– – (i) Built to International Standard/ Size/ Variety (ii) Linkage between Owner/ Developer/ Maintenance
• • •
Positive Brand image Size of operations Timely delivery
Thank You
doc_215166067.ppt
This is a presentation explaining funding through private equity, Different Types of Funding available in Real Estate, Deal Structures for Private Equity Partnership, Deal Structuring Considerations, Key Points to discuss and negotiate in a Private Equity Partnership.
Private Equity Funding
Funding through Private Equity
•
Private Equity is the only form of funding which truly participates in project risk along
with the developer
• Private Equity Funds can enter at any stage of a project but RBI prohibits them to come in after a certain stage in India
•
Globally the largest source of real estate financing comes from Real Estate Funds,
Private Equity Funds and Hedge Funds
Different Types of Funding available in Real Estate
Type of funding
• • Internal accruals Pre-sale / customer advances
Issues
Limit to growth Could be selling out ‘too early’ Could dry up in market downturn ‘Over leveraging’ risk in downturn Capital flight if market turns Control; what is the ‘end-game’?
• • • •
Debt Individual high net worth investors Strategic investors Private Equity
Higher governance standards
Deal Structures for Private Equity Partnership
1
Stake in Holding Company
2
Concept SPV
3
Project Partnership
4
Late Stage Buyout
• Investor takes a strategic stake in the company • The investment horizon of the investor is longer • There is a commitment from the investor for investment into each subsequent project
• A new company – SPV is formed for executing particular types of projects • The plans of the company are firmed up in Year 0 in terms of the number of projects that it will execute • Equity can flow in at one go or in a staggered fashion
• A new company is formed for executing one particular project only • The equity partner takes a stake based on the valuation of the standalone project • The equity flows in at one go at the beginning of the partnership
• An institutional investor comes in and buys out a property after construction has begun • Most such buyouts occur after completion of 3040% construction • Mostly for commercial properties where rentals are then earned by the investor
Deal Structuring Considerations
• • •
Exit scenarios Nature of returns to be generated and leakage required Type of deal
– – – Nature of project – residential, commercial etc. Deal Structure - investment in Holdco/existing company/SPV Purchase of shares/asset/construction agreement/land-owner rights – combination thereof
• • • •
Nature of cash-flows which would arise Debt equity mix Restructuring flexibility Investment instruments
– Equity and equity linked instruments
• • Equity/preference shares
– similar / differential rights
Compulsorily / optionally convertible debentures (OCDs)
–
Non convertibles/debt
•
Time period of investment
Key Points to discuss and negotiate in a Private Equity Partnership
• • • • • •
Understanding of classes of Equity Shares and Convertible Instruments Structuring of Distribution of Returns Default Scenarios Board of Directors Bank Accounts of the Company Preferred Return – – Hard Guarantee of Returns Soft Guarantee
• •
PUT / CALL Options and any Pledge of Shares Business Plan and Performance Indicators, Completion Guarantees
•
•
Future Funding Patterns
Veto Rights of Investor
Key Messages for Success in Private Equity Partnership
•
True Alignment – Exit Oriented Financial Alignment.
•
•
Building Transparency for every phase: Land Acquisition, Development and Exit
Accelerated Delivery is Key: Don’t cut corners. Retain the right advisors - from Construction project management, financial structuring, to partners with experience in large scale developments.
•
Focus on Maximizing Value Creation by optimizing financial Leverage available with this new source of capital.
Critical Developer Traits for Success
•
Vision of the Developer
•
• • • •
Transparency and Value Driven
Ability to Identify and Obtain prime property Knowledge – Project Specific, Industry & Over all Conviction and Tenacity Quality Real Estate
– – (i) Built to International Standard/ Size/ Variety (ii) Linkage between Owner/ Developer/ Maintenance
• • •
Positive Brand image Size of operations Timely delivery
Thank You
doc_215166067.ppt