Alternative investment funds (AIFs) in real estate are actively scouting for deals in commercial space of mixed-use redevelopment projects in Mumbai and other cities, attracted by higher return on investments as well as lower building cost.

Large players such as Motilal Oswal and Nisus Finance are in a race to invest in such properties spread over 100,000-200,000 square feet, according to a news report by Financial Express.

While old residential buildings in Mumbai have a redevelopment pipeline of Rs 1.5 lakh crore by 2031, as per property consultant Knight Frank, industry estimates peg the commercial portion at 10% of the total, offering Rs 15,000 crore worth of opportunity in mixed-use properties.

Such properties-located in mid-income housing projects-are built for sell unlike the typical “build-to-lease” ones in office hubs.

For investors, realization from such properties is better-a 30% internal rate of return (IRR) for mixed-use projects compared with a 23-24% for residential properties.

Saurabh Rathi, managing director and co-head of real estate funds at Motilal Oswal Alternates, said they are looking to invest in redeveloped properties and are conducting due diligence in one such project on Western Expressway in Mumbai. They are also evaluating a fund to invest in redeveloped properties, strata sold properties (smaller office or mall properties that are sold to different owners and investors), open plots and other commercial properties, he said.

Mumbai-based fund manager Nisus Finance is also exploring such deals, said Chairman and Managing Director Amit Goenka. “There is a huge shortage of office properties in Mumbai and rents have gone through the roof,” he said.

The advantage of these commercial properties is that these occupy four or five floors of a building and get part occupation certificate which can be handed over to owners while the construction continues, he said.