Padma Ramakrishnan
The Economic Times (Mumbai edition)

As developers increase their footprint and expand their business five-fold, execution capabilities and finance have emerged as big challenges. Project related Special Purpose Vehicles have, in this scenario, emerged as viable options that are investment-related only to the project.

In an SPV, the developer ties up with a private equity fund who provides capital, or alternately, ties up with foreign developers who not only have capital but also bring in technical and execution capabilities. Several developers in Mumbai, Delhi, Pune, Chennai are looking at tying up with foreign developers. SPVs have picked up as every developer needs financial backing and the overall capability to manage, says Sanjay Dutt, Deputy Managing Director, Cushman &Wakefield. It is much easier to establish the forecasted profits in an SPV as opposed to when it is pooled into the entity.

Many developers are diluting a minority stake in their entity organisation, or going in for specific FDI compliant SPVs for different projects. Dutt explains that there are developers developing SEZs/ retail/ hospitality / mixed townships who will accordingly choose partners who can bring in the requisite expertise in the different real estate segments. Then there are developers who have taken too much land but do not have the financial backing or expertise and are hence looking for partners in an SPV.

SPVs are the only way out in FDI projects, where you have a clear shareholder agreement and control in the project and exits becomes easier. According to Gautam Hora, Senior Manager, India Capital Market, Jones Lang LaSalle Meghraj, the foreign investor or fund wants to join hands with the local developer and an SPV is formed, so that any unsettled claims, litigations with respect to the existing entity are not carried forward.

Most large builders today have either tied up with funds or are scouting for joint venture partners overseas. Prominent real estate companies like DLF and Ansal API, have recently tied up with Dubai-based firm Nakheel and Deyaar, and are looking at more such deals. Through its joint venture with Nakheel, India's largest real estate developer DLF is planning to invest $10 billion in two integrated townships spread across 40,000 acres.

One of the earliest SPVs was the Emaar-MGF, joint venture company formed by Emaar Properties PJSC Dubai, the world's largest listed real estate company, and Delhi based MGF Developments Limited for an FDI project amounting to over half a billion dollars for projects with a capital outlay of US$4 billion (Rs 18,000 crore). Today there are SPVs galore, and some examples include the Runwal CapitalLand venture in Mumbai, Oberoi Constructions tie-up with Morgan Stanley, Keystone Group and Trikona Capital SPV for a Thane project of 127 acres.
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