The investment arm of one of MumbaiÆs leading developers, Hiranandani Group, is in talks with international investors about raising capital via strategic partnerships or other structures to expand property projects, at a time when investment in Indian real estate may be further liberalised.

Hirco is a London Alternative Investment Market-listed, Philadelphia-based investment company affiliated with the Hiranandani familyÆs eponymous real estate venture. It is interested in exploring different ways to work with global investors experienced in property, be it through loans, private placements or debt. HircoÆs balance sheet is currently unleveraged and the group wants to exploit HiranandaniÆs landbank and project pipeline, explains Aniruddha Joshi, executive director at Hirco.

ôWe want investors who understand real estate in India, or are willing to learn,ö Joshi says. ôThese investors should realize these are 7-9 year projects and not focus on the short-term ups and downs of the Mumbai stock market. They should have high standards of corporate governance and bring international expertise that we can benefit from.ö He declined to say how much capital Hirco would like to raise.

There is a paucity of developers in India with international exposure and a commitment to shareholder rights, so Hirco has in fact been in talks with many prospective investors. ôItÆs a question of structure and pricing,ö Joshi explains, noting that many foreign real estate funds, established since liberalisation in 2005, have come to realise how difficult the market can be.

Hirco listed on AIM in 2006 and raised ú360 million ($708 million). Already however 97% of that sum has been committed to a quartet of township projects in two locations, one outside Chennai, the other in Panvel near Mumbai. Like HiranandaniÆs earlier township projects, these are mixed-use and commercial sites that include high-end residences, office towers, hospitals and hotels.

The first ones were built starting in the late 1980s, in Powai and Thane, two locations outside Mumbai, which have evolved into premium residential and corporate addresses; tenants include the likes of Lehman, Prudential and brand-name foreign and Indian corporations. These townships also require the proper infrastructure often being built from scratch.

Hirco was launched when, in 2005, the Indian government allowed foreign direct investment into the domestic real estate sector, albeit restricted to large greenfield developments, with no secondary trading allowed. The structure of the projects has allowed it to invest its capital quickly: Hiranandani owns 100% of the townshipsÆ common stock and handles the development, while Hirco owns 100% of preferred stock with an annual coupon of 12%. As these projects generate cash, the money goes first to HircoÆs coupon, then its capital, then to the Hiranandani family, and the remaining profit is split between them.

Hiranandani has already sold 1.4 million sqf of the Chennai residential units at an average price of just under $100 per sqf. The four new townshipsÆ total size is around 65 million sqf.

Joshi says the sector continues to deregulate, which creates new angles for investors. The Securities and Exchange Board of India has circulated draft legislation to allow real estate investment trusts. These would not only create a new source of investment for developers but also give investors a new way to exit projects. The rules apparently need to be sharpened up in areas such as tax treatment, but could make an appearance in New DelhiÆs annual budget, to be announced on Thursday.