Bengaluru: Large office space developers in India are set to raise more than $3.5 billion by March from institutional investors and pension funds. The fundraising will help the property developers bring new investors on board and expand their project portfolios.
Bengaluru-based RMZ Corp., backed by the Qatar Investment Authority (QIA), plans to raise about Rs1,700 crore by selling a stake in a portfolio of office assets. QIA, which bought a 22% stake for Rs1,200 crore in RMZ’s first office platform, will also invest in the second venture, and the developer is in talks to bring another investor on board.
“There is significant investor interest, particularly from pension funds. The first set of investors (QIA) is already in place and the other investors will come. We are lining up assets to buy and develop under the second platform,” said Raj Menda, managing director at RMZ Corp.
RMZ, with around 20 million sq. ft of office assets, will also apply to set up a real estate investment trust (REIT) in 2017.
Commercial properties have outpaced the residential sector in terms of space absorption in the last three years because of higher lease rentals and demand exceeding supply. High quality office assets are in great demand, and global investors such as Blackstone Group Lp, Brookfield Asset Management Inc. and GIC Pte Ltd are exploring buyout opportunities.
Singapore-based Ascendas-Singbridge Group is also looking to acquire operational office assets and buy land to develop greenfield office projects in India, in bid to expand its project portfolio and add to its Singapore-listed REIT, Mint reported on 10 August.
Mumbai-based K. Raheja Corp., which has built around 19 million sq. ft of office space so far, is also looking at bringing an institutional investor on board by diluting stake in the firm and raising around $300-400 million, said two people familiar with the company’s plans. “The company plans to use the money as growth capital, acquire more assets and add significantly to its existing portfolio,” said one of the two people, asking not be named.
The transaction is expected to close by March.
The two largest funding deals in the office sector are DLF Ltd selling a 40% stake in its rental assets arm to raise about $2 billion and Brookfield Asset Management Inc.’s plan to invest $1 billion to buy out the office and retail assets of Hiranandani Developers Pvt. Ltd in suburban Mumbai.
Hiranandani and Brookfield are currently in the last leg of concluding the transaction, in which the former is selling 4.5 million sq. ft of office and retail space in its flagship project.
Once the transaction is complete, the developer will use the money for expanding its business.
“We are not reducing our rental portfolio but also adding projects and will build more. We have about 5 million sq. ft of under-construction space in Thane. The idea is to monetize over a period of time. Global investors now are averse to risk and are looking at ready office properties with steady rentals,” said Niranjan Hiranandani, co-founder and managing director of Hiranandani Developers.
DLF, on the other hand, will raise about Rs12,000 crore from investors before it actually goes for a REIT listing.
On 21 September, The Times of India reported that Bengaluru-based Prestige Estates Projects Ltd plans to raise at least $300 million by selling 40% stake in its rental assets portfolio, which includes both office and retail projects.
“REITs are not going to happen in a hurry, so before that, it makes sense for financial investors and developers to strike capital partnerships. This will also help developers get some endorsement from institutional investors, given the growing interest in income-yielding assets,” said Shobhit Agarwal, managing director, capital markets and international director at JLL India.
Ozone Group in Bengaluru, which has one commercial office project in the city, is also planning to raise money from institutional investors to do more office projects and maybe form an office platform going ahead, said Srinivasan Gopalan, chief executive officer, Ozone Group.
The firm has 14 acres earmarked for an office project at its Urbana township in Bengaluru.