Fund managers investing in realty say that there is a vacuum with regards to capital and liquidity for realtors and there is an opportunity for the PE firms with a long-term view.

"The perceived risk in emerging market realty has also gone up. So, we try to structure-in protection mechanisms for our investments. We seek debt-like covenants secured by the developers' stake in SPVs and continue to share in the equity upside," says Walton Street Capital India MD Sourav Goswami. His company has recently signed a term sheet with a realtor for a residential project. Walton's internal rate of return(IRR) expectation has gone up by 500 basis points in the past six months.

Unlike past, plain vanilla PE deals are now rare in realty. "Almost all recent deals are structured to give PE investors a preferred return. You can have plain vanilla equity deals even today, but for that to happen, developers will have to bring down valuations significantly," says DTZ investment director Amber Maheshwari.

He adds that most PE firms are currently asking for an IRR of 18-25%. Under the preferred mode, if the realty project generates a lower than expected return, then the PE firm first get its share(equivalent to its agreed IRR) from the overall profit and the balance accrues to the developer.

Delhi-based realty company Ambience group's chairman Raj Singh Gehlot says PE today is nothing more than structured debt. "The return they ask for is around 30%. We don't want to get into a debt trap," says Mr Gehlot.