The Hindu Business Line : Milestone rolls out third realty fund

Milestone Capital Advisors, a venture fund focussed on Indian real-estate, is rolling out its third realty fund for Indian investors. The fund, Milestone Domestic Scheme II (land acquisition, plotting and development fund), will invest in the entire gamut of real-estate, from plotted development of lands to projects in housing, commercial and warehousing..

Objective

The fund seeks to provide diversification across realty segments, thus reducing risks. The diversified segments, with different life cycles, are expected to generate returns across different time periods, thus ensuring revenue flow. For instance, development of plotted land would involve buying of land and selling it after converting into non-agriculture parcels and providing infrastructure and amenities. This may call for a relatively shorter gestation period of one year at the end of which the fund exits the project, thus generating returns.

Similarly, development projects would provide returns after a lock in of 24-36 months. Regular income flow — expected to be 10-14 per cent — would also be generated through investments in completed/leased out properties. Thus revenue flow from land development, project development and lease would span across various time periods. The fund will focus on Tier-II and Tier-III cities for investing in projects that offer ‘affordable housing’ as well as plotted land. In Tier-I cities, it will look at investment opportunities in warehousing and commercial projects. Tamil Nadu is a major destination for the fund’s investments. Milestone’s strategy is to tie up with local partners who have demonstrated strong performance.

Details

The four-year fund seeks to raise Rs 1,000 crore. An option of two one-year extension also exists. The funds will be committed in projects within 18 months from the final closing. The minimum contribution for individual investors is Rs 20 lakh. The fund carries various charges, such as management and set-up fee. It opened for subscription during the first week of May.

Milestone has two existing funds. The first fund — Milestone Domestic Scheme I with a corpus of Rs 250 crore —has almost fully committed its funds in 14 projects across five cities. The company has independently valued the land appreciation in this fund to be 32 per cent in six months. The second fund IL&FS — Milestone Fund I, a scheme with a structure similar to REIT — has distributed income twice in the last two quarters, the return being 11-12 per cent pre-tax. Realty venture funds require a minimum investment of Rs 5 lakh as per SEBI rules. The funds are, therefore, targeted at High Networth Individuals and financial institutions.

The targeted return for Milestone Domestic Scheme II is 30 per cent compounded annualised IRR over the fund’s tenure.

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