Toro Finserve launches India’s first Healthcare Real Estate Fund of $500M
Kapil Khandelwal, an investor, has launched India Healthcare Opportunities Fund (IHOP) as SEBI Alternative Investment Fund under Category 2. The total corpus of the fund is $500 million. The corpus is of $250 million with an additional leverage of $250 million.
A press note shared by the fund states that the fund will focus on investing in stabilising healthcare real estate. The focus will be on providing long-term leases from stabilised assets such as hospitals, diagnostic centres, rehab facilities, and assisted living facilities with established healthcare operators in tier-1 and tier-2 cities in India.
The fund already has commitments of $110 million from some state governments in India, UHNIs, Fund of Funds from abroad. It is expected to start its formal road show in India and abroad in June-July 2017. The fund is in discussions with various banks and financial institutions for lease rental discounting (LRD) and leverage and distribution of the fund.
Kapil, Managing Partner of Toro Finserve, outlines that the total value of healthcare real estate already built is of over $120 billion with less than 5-7 percent operating under asset light model.
He adds that further over $200 billion is expected to be spent on development of healthcare infrastructure for India to come to the international norms in terms of real estate to get to Indian Government’s target of three beds per 1,000 people by 2025.
“Our fund expects to create and invest in healthcare infrastructure where institutional investments in healthcare infrastructure has been shy and selective around a few chains of private hospital so far. Indirectly, we are also creating social impact through raising the supply of scarce healthcare infrastructure in our country,” says Kapil.
The investment and advisory committee of the fund includes Arvind Lal, Chairman of Dr Lal’s Pathlabs, Kewal Handa, Ex-Managing Director of Pfizer, India, Sampath Shivangi, ex-Chairman of Association of American Physicians of Indian Origin and 2017 Pravasi Bharat Awardee and Dr Sathya Kallur, entrepreneur and dentist to celebrities in the US and Founder of Swiss Smile in India.
Speaking of the team, Kapil adds: “Our team has worked on over $42 billion of real estate transactions and $2 billion of healthcare transactions globally.”
Currently, the fund is evaluating deals worth $200 million in Indian hospital chains, assisted living, and diagnostic centres to issue term sheets.
Kapil adds that private healthcare operators want to expand to underserved/profitable areas to widen their reach, but have limited access to affordable capital. Raising finance from private equity firms and financial investors is very expensive and IPO is not an option for many of the hospital operators.
Banks may provide loan against property to the operators, but generally the amount is not adequate (restricted to 50-60 percent of the property value) for an operator to expand and stabilise operations in a new location.
“In the US, the healthcare industry makes up an astonishing 17.3 percent of the nation’s economy, whereas in India it contributes only 4.1 percent. Growth drivers seem to be perfectly aligned now more than ever, owing to reforms and a promising healthcare policy,” adds Kapil.
The Ministry of Heath, Government of India announced National Health Policy 2017 to stimulate investments and growth of infrastructure in healthcare in India. There are limitations around the forms of capital the healthcare industry in India has been able to raise through banks, financial institutions, and private equity.
“Our model of sale-leaseback transaction of real estate assets for medical entrepreneurs who are looking to expand their healthcare business by either setting up one or a chain of hospitals, old-age homes or diagnostic centres in the country. This would allow them to free up capital to deploy in their business and focus on better returns in their business of healthcare services delivery,” explains Kapil.
Currently, the fund expects to acquire and build over million sq ft of healthcare space over its term. The fund has also built out a consortium of partners which are going to deliver healthcare infrastructure, cheaper, better and faster to reduce the time to market and operating costs for the healthcare facilities invested by the fund.
Kapil believes that one of the major pain points for developing healthcare real estate is the time to build and the regular operating costs of running and maintaining these facilities. “Our plans are to reduce these by half through our strategic partner ecosystem of our fund,” says Kapil.
