Private investors competing for commercial realty in India

India’s services-led economy,  which is the fastest growing in the world, has created a steady market for income-generating commercial real estate, giving private investors a chance to list these assets through real estate investment trusts (REITs). These trusts are listed entities holding income-generating real estate assets from which earnings are distributed to shareholders.

To help real estate and infrastructure developers list their rent-yielding assets as well as provide large and small stock market investors with an inflation-indexed product, the Stock Exchange Board of India, Sebi also came out with REIT guidelines two years ago. In order To further enhance the optimism in the commercial real estate market, The Union government has also recently given tax clarity in setting up REITs, as sought by global investors.

Bulge-bracket investors like Blackstone, Qatar Investment Authority, Goldman Sachs and GIC of Singapore are some of the institutional investors who have been increasing the volume of their Indian office space portfolio in recent years.

Brookfield Asset Management, one of the world’s largest property and infrastructure investors, is just a few days away from owning the commercial real estate assets of Hiranandani Developers in Powai near Mumbai for approximately Rs 6,700 crore). In the transaction, the company will buy the 4.5 million-sq-ft business park, making it the single largest commercial property acquisition in the country.

This deal would outdo Qatar-backed RMZ Corp’s recent acquisition of Equinox Business Park from Essar for Rs 2,400 crore in Bandra-Kurla Complex as the largest MA in the country’s commercial real estate market. Brookfield’s acquisition of the AIM-listed Unitech Corporate Parks for over Rs 2,000 crore in 2014 was another big transaction. The Hiranandani deal would see Brookfield competing with Blackstone Group, the most aggressive buyer of Indian office properties until now, for a bigger share of the 400 million sqft grade-An office space in India.

After acquiring Unitech Corporate Parks and Gammon’s road and power assets, Brookfield pipped other potential suitors (Canadian Pension Plan Investment Board and Blackstone) with an aggressive offer to chase down its third Indian buyout deal with the Hiranandani transaction.

With Unitech Corporate Parks 11million sq ft of leased office space and a potential to develop 6 million sq ft more, The Hiranandani deal will take Brookfield’s portfolio to over 21 million sqft. Blackstone, through joint ventures and fully owned subsidiaries, already has a 50 million sqft portfolio of office space in the country.

commercial real estate

In most recent realty news, southern real estate developer, RMZ Corp is in the advanced stages of negotiations to acquire Equinox business park in Mumbai from the Ruias of Essar Group. Sources familiar with the development confirmed that the transaction has been concluded for a monstrous Rs. 2400 crore. While billionaire brothers Shashi and Ravi Ruia are divesting non-core assets to pare Essar’s debt burden, this is by far the largest real estate deals of Mumbai and one of the biggest in India.

Bangaluru  based RMZ, backed by Qatar Investment Authority (QIA), will pay around Rs 19,000 per sqft for Essar’s 1.2 million sqft biz park, located adjacent to Bandra Kurla Complex which houses lessees like IDFC, Tata Communications, Crompton Greaves, Nissan and Lafarge among other Essar companies. RMZ manages about 20 million sqft of commercial office space across multiple cities and is currently on the prowl for large acquisitions to build an 80 million sqft portfolio in the next five years.

Anshuman Magazine, chairman and managing director, CBRE South Asia, notes that The Essar – RMZ deal shows an improvement of interest in commercial real estate. Such core rental yielding assets have lower risks associated as there is no pressure of development and leasing.

Anuj Puri, JLL India chairman and country head,  said in spite of the various influences that shape up real estate markets across India, Mumbai’s intrinsic equity as India’s financial capital remains undiminished and continues to drive major decisions by corporate and investment houses.

In some of the other large transactions, GIC of Singapore acquired 69% stake in Nirlon, which manages a 2 million sqft office park in Goregaon suburb, for 1300 crore in December 2014.

About two months ago, pharmaceutical conglomerate Abbott acquired 4.35 lakh sqft of commercial space in a tower developed by Godrej Properties in Bandra-Kurla Complex for Rs 1,479 crore.

In another massive multi-layered deal in office real estate market, Brookfield purchased Unitech’s Corporate Park for Rs 2050 crore  for majority control of six parks in NCR and Kolkata. Furthermore, Embassy Office Parks, backed by Blackstone, acquired Vrindavan Tech Village in Bangalore for Rs 1950 crore.

India’s large grade office buildings, riding on a robust services economy, have returned stable yields to investors in an otherwise volatile real estate market. Assets worth nearly $3 billion have together been acquired by global investors like Canadian Pension Plan Investment Board, Brookfield Asset Management, Blackstone  and Middle East sovereign funds among others during the last calendar year.