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HDFC Capital, Cerberus set to pair up for $1 billion real estate investment fund

The fund, to be set up through an affiliate of New York-headquartered Cerberus Capital, will target stressed projects, purchase inventory and provide last-mile funding for under-construction residential projects.

HDFC Capital and global alternative investment major Cerberus Capital Management LP have formed a partnership to create a fund that will focus on high-yield opportunities in the Indian residential real estate sector. The size of the proposed fund will be upwards of $1 billion, said people familiar with the development.

The fund, to be set up through an affiliate of New York-headquartered Cerberus Capital, will target stressed projects, purchase inventory and provide last-mile funding for under-construction residential projects.

“Housing is an integral part of our economy and because of its linkages to other industries and to the labour market, it is a critical sector for ensuring economic growth,” said Deepak Parekh, chairman of Housing Development Finance Corporation NSE 1.34 % (HDFC), of which HDFC Capital is a subsidiary.

The deal is another sign of foreign investment firms’ growing interest in India.

“Despite the massive need for housing within the country, a large number of launched housing projects are currently under distress, leading to a complete standstill on project execution,” said Parekh. “This platform will provide much-needed financing for housing projects and help in delivery of finished units to home buyers.”

HDFC and Cerberus declined to comment on the size of the proposed fund.

Currently, the government-backed Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects (SWAMIH) is the only large dedicated federal financing pipeline aimed at completing housing projects that are stuck.

Allow partial exit to lenders

“The structure of the HDFC-Cerberus fund will make it complementary to the government-led SWAMIH fund, as it will also allow partial exit for existing lenders of the project, thereby increasing the scope of projects that can be covered for resolution,” said Vipul Roongta, managing director of HDFC Capital.

While HDFC and other financial institutions have invested in SWAMIH fund, the HDFC-Cerberus fund will be the only private sector initiative with an objective of resolving the issue of stuck and distressed housing projects.

“Cerberus has a long track record of partnering with businesses and properties around the world,” said Frank Bruno, co-chief executive officer of Cerberus. “We are able to provide tailored solutions in sectors with dislocated funding channels in various forms, such as the purchase of assets, creation of operating and lending platforms, and provision of structured capital to best-in-class operators.”

Cerberus has been active in India since 2019 across verticals, including acquisition of nonperforming assets, provision of capital to corporates, and creation of financial services and real estate platforms.

A series of shocks to the Indian residential real estate market has created a need for capital. Many buyers are unwilling to fund projects in advance, while traditional financing channels have come under severe pressure.

The proposed fund by HDFC Capital and Cerberus Capital will also partner other investors looking at credit opportunities in the country’s real estate sector.

India is one of the fastest-growing economies and the firm sees broad opportunities here to leverage its financial and operating expertise, said Indranil Ghosh, head of India and managing director at Cerberus.

“We are excited to partner with HDFC Capital on this platform and participate in the country’s continued development,” he said.

According to government estimates, over 1,500 residential projects with a total of 458,000 housing units are stuck across the country, mostly due to lack of financial support.

Of these, around 190,000 units worth about Rs 1.19 lakh crore are in the National Capital Region (NCR). The Mumbai Metropolitan Region (MMR) is second on the list with nearly 180,000 stuck or delayed units worth over Rs 2.02 lakh crore, according to a recent report.

Together, NCR and MMR account for nearly 74% of such units, while the southern cities of Bengaluru, Chennai and Hyderabad together hold 8% of the overall share.

Large financial institutions are looking to tap this market by supporting completion of such projects.

Cerberus Capital Management, founded in 1992, is an investment advisor registered with the United States Securities and Exchange Commission. It is counted amongst global leaders in alternative investing with over $53 billion in assets across complementary credit, non-performing loans, real estate, and private equity strategies.

HDFC that started in 1977 is the pioneer in housing finance in India and is engaged in financing the purchase and construction of residential houses, real estate in India. HDFC had assets under management (AUM) of Rs. 5,52,167 Crore as of December 31, 2020 and has assisted over 81 lac families own a home of their own.

HDFC’s 100% subsidiary HDFC Capital Advisors provides investment management services for real estate private equity financing and is one of the largest fund managers in the country. The company is the investment manager to HDFC Capital Affordable Real Estate Fund 1 (H-CARE 1) and HDFC Capital Affordable Real Estate Fund 2 (H-CARE 2), both SEBI registered category II Alternative Investment Funds cumulatively managing $1.5 billion worth of assets.


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