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.

RMZ Corporation Banglore

Essar is in initial negotiation stage with real estate developer RMZ Corp to sell its Equinox Business Park, which is located in Mumbai. According to sources the price of deal will be about Rs 2,400 crore, or $ 360 million. In recent years, this could be the biggest commercial real estate deal in the MMR region as billionaire brothers Ravi Ruia and Shashi Ruia are divesting their noncore assets to repay the debt of Essar.

Equinox Business Park, which owned by Ruia family is located adjacent to Bandra Kurla Complex and it is the house of leading market players such as; Nissan, Tata Communications, IDFC, Crompton Greaves and Lafarge and of course Essar companies as well. However; Bangalore based real estate developer RMZ Corp is backed by the QIA (Qatar Investment Authorit) and it is expected that it will pay about Rs 19,000 per sqft for Equinox Business Park, which is spread on an area of 1.2 million sqft. It is expected that RMZ will conclude the deal in tow equal stages over the period of six months. It will be 100 percent acquisition from both parties as both parties will meet certain milestones in their business. According to Manoj Menda, Vice Chairman of RMZ, “We confirmed the rumors of deal, but at this point of stage we cannot comment”, however; on the other side Essar declined any comment. According to statement of Anshuman Magazine, Chairman and Managing Director of CBRE for South Asia division, “This deal shows that how commercial real estate is generating interest among real estate developer, especially when it comes to core rental yielding assets. The risk associated with these kinds of properties is much lower than the fully constructed properties where there is no pressure of development and rentals”.

Currently, RMZ is managing about more than 20 million sqft of office space in different cities and now this real estate developer is looking for some large deals to acquire more space in commercial segment as RMZ aims to build a 80 million sqft portfolio in the next three to five years. RMZ’s this acquisition is one of the largest and latest among the series of high profile office space deals because some global investors such as; Brookfield Asset Management, GIC of Singapore, Canadian Pension Plan Investment Board¸ Middle East and Blackstone are over sign a funds to down transaction opportunities in the India. In last calendar year these global investors have acquired assets worth $ 3 billion. In present all the major global real estate developers seeing Indian real estate market as a golden opportunity as in India “Grade A Office” buildings are riding on a robust services economy. Anuj Puri, Chairman and Country Head of JLL India stated that in spite of different influences which shape up real estate markets in India, inherent equity of Mumbai as India’s financial capital remains undiminished and it is expected that it will continue to drive major decisions by large corporates and investment houses.

In December 2014, GIC of Singapore was acquired 69 percent stake in Nirlon and currently it is managing 2 million sqft office space in Goregaon suburb and its cost is Rs. 1300 crore. Apart from that we all know that last month pharma MNC Abbott was acquired .35 lakh sqft in one of the commercial tower at BKC which was developed by the Godrej Properties and cost of deal was about Rs 1,479 crore. It was considered as the biggest transaction for any single user commercial real estate in India.

However; Brookfield’s Unitech Corporate Parks acquisition was seen as the biggest acquisition in Indian office space market. However; it paid Rs 2050 crore for majority control of six parks in Kolkata and NCR. Apart from that with undisclosed amount they also buy 40 percent holding in Unitech.