Instead, wealthy investors are increasingly opting for structured, professionally managed exposure through Alternative Investment Funds (AIFs).
According to Karthik Athreya, Director and Head of Strategy – Alternative Credit at Sundaram Alternates Assets, this marks one of the most significant trends in the private wealth landscape.
With real estate emerging as the largest category for AIF investments—drawing over Rs 73,000 crore in just the first nine months of FY25—HNIs are clearly embracing a smarter, hands-free approach to accessing commercial, residential, logistics, and data center opportunities.
Athreya explains what’s driving this shift, the evolving role of family offices, and why AIFs—offering yields of 15–18%—are becoming the preferred route for India’s wealthy to ride the real estate wave. Edited Excerpts –
Q) No, we are not talking about an apartment in Dubai. But, are HNIs and UHNIs taking part in the commercial real estate via the AIF route?
A) That’s one of the most significant trends we’re seeing right now. HNIs and UHNIs are heavily leveraging the AIF route to get into commercial real estate.
In fact, real estate is the single largest category for AIF investments, attracting roughly 73,903 crores just in the first nine months of FY25.
These AIF investments are spread across real estate segments like commercial, residential, logistics and retail. The reasons for HNI / UHNIs participation in commercial real via AIFs are twofold.
First, the commercial market itself is booming, largely driven by the GCC wave—India is now home to over half the world’s Global Capability Centers. With leasing at decadal highs, there is massive demand for quality office space.Hence as an investor, one is looking at a regular income generating asset, typically around an 8% rental yield with an opportunity to participate on the upside of another 4-5% through annual appreciation / rent escalations.Second, for a busy HNI, the AIF route is simply a ‘no-brainer’. It helps them sidestep all the headaches of direct ownership, like finding tenants, managing the property, dealing with day-to-day issues and finding a lucrative exit strategy.
Instead, they get a slice of a diversified, professionally managed portfolio of top-tier assets with target IRRs in the 15-18% range.
Another route opted by HNIs is through listed REITs, which offer the similar benefits albeit lower yield without compromising on liquidity. There’re already nearly 22,000 crores of HNI and retail capital in REITs.
Therefore, in our opinion, HNIs are absolutely participating in the commercial real estate story in India through the AIF route.
Q) What’s driving the shift among HNIs from direct real estate investments to structured exposure through AIFs?
A) The shift is simple: HNIs want to be strategic investors, not active landlords. They’re choosing AIFs for access to a diversified portfolio of top-tier deals without the day-to-day hassles of direct ownership.
That’s precisely the model we’ve perfected at Sundaram Alternates. Our real estate strategies are a testament to this trend’s success.
We have consistently delivered ~15% IRRs for over seven years, which is why more than 700 HNIs have entrusted us with over ~2,600 crores. They’re choosing a proven partner for smarter, professionally managed real estate exposure.
Q) Which real estate themes are HNIs allocating to most via AIFs — warehousing, data centers, rental-yielding commercial assets, or residential development?
A) HNIs are strategically adjusting their real estate allocations through AIFs, with the investment timeframe being a crucial determinant.
For investors prioritizing shorter cash-in cash-out cycles of 3-5 years, often seeking senior secured, self-amortizing structures with quarterly payouts—like those offered by Sundaram—the residential theme remains a preferred choice.
Conversely, those with longer investment horizons are leaning towards the commercial and industrial spaces. These segments offer rewards primarily through stable rental yields and annual capital appreciation, which are often linked to prevailing interest rate cycles.
A recent Anarock report for FY25 shows Industrial & Logistics (warehousing) dominating, capturing 48% of institutional funding. This surge, though influenced by large transactions, highlights its long-term potential driven by e-commerce and modern supply chains, offering stable leases and often lower development risk.
Conversely, Office space is at 22% and residential at 15%. Interestingly, the ‘Others’ category, encompassing themes like data centers, has jumped fivefold to 15%. This signals aggressive allocation into these high-growth, emerging sectors.
Data centers, while requiring longer horizons and specialized expertise, promise significant long-term appreciation and resilient income due to digital demand.
Ultimately, HNI allocation reflects a balance: shorter-term opportunities in traditional residential assets versus the compelling risk-return benefits and secular tailwinds of commercial, warehousing and data centers for longer-term growth.
Q) How do you see family offices and private wealth desks evolving their real estate strategies over the next 2–3 years?
A) Family offices and private wealth are indeed evolving their real estate strategies significantly. We’re observing a clear shift from the previously unregulated equity models to more structured financing, a trend accelerated by the increasing maturity of the Indian real estate finance landscape over the last decade.
The substantial inflows into Alternative Investment Funds (AIFs), particularly within the debt sector, underscore this maturation.
Looking ahead, the next two to three years will likely see these sophisticated investors transitioning from purely debt-oriented platforms to embracing more mezzanine & equity-based strategies which shall aim at net returns of 18-21%.
This includes a willingness to finance land acquisitions and take on back-ended premium exposures. This strategic pivot reflects a more nuanced approach to risk-reward in a regulated environment.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
