In the land of plenty

Why would a German and a Swiss financial services firm come together to invest in Indian real estate? Jay Oberai, Managing Director of the Switzerland-based Synergy Asset Management, has a ready answer. "Real estate in the developed world is generating less than 5-6 per cent (net of taxes), with even a risk of capital loss. Given this background, a 15 per cent return (net of fees and taxes) is attractive for our investors," he says. Synergy's partner is the Germany-headquartered MPC Capital AG, and the two have formed a joint venture called MPC Synergy Real Estate AG. Adds Ulrich Oldehaver, Board Member, MPC Capital: "We rely on stable double-digit internal rates of return (IRR)."

With a potential kitty of over $1 billion (Rs 4,100 crore), MPC Synergy believes in keeping the project pipeline ready ahead of the fund-raising. Initially, proprietary equity investments will be made on the back of credit lines available to MPC Capital in a series of close-ended funds. Once there is a clear project pipeline in a particular fund, it will be syndicated to the European retail investors. MPC Synergy's first fund will likely soak up around $200 million or Rs 820 crore ($65-80 million or Rs 266.5-328 crore as equity alone) in three residential projects in Bangalore, Mohali and Ludhiana.

These projects will be executed in a joint venture with the Anil Nanda group's Akme Projects. MPC Synergy is also interested in the retail and hospitality sectors and is looking at investments of $400 million (Rs 1,640 crore) in each. It is in talks with two operators each for each sector. "We are not desperate to spend money; we are unlike other funds, which raise funds before firming up projects and then rush to invest as the IRR clock starts ticking," says Axel Schroeder, Chief Executive Officer, MPC Capital.

The real estate investments may only be a precursor to more investments in the areas of expertise of the JV partners. Synergy, for instance, has asset management business, whilst MPC offers ship investments, life insurance funds and other structured products. "Once we build our name in real estate, we will look at other areas for investment such as infrastructure," says Schroeder. Financial services could be an area of expansion, but that is clearly a long-term step. In the intermezzo, real estate returns will occupy centre stage.