ICICI Prudential AMC Ltd is set to raise a Rs700 crore office assets fund to buy pre-leased, rent-generating properties in Bengaluru, Pune, Chennai and Hyderabad.
The new fund—ICICI Prudential Office Yield Optimiser Fund—will be raised in around three to six months and has an investment period of 18 months. It will invest Rs100-200 crore in each transaction.
The target corpus of the fund is Rs700 crore, with the option to raise an additional Rs300 crore if there is higher demand.
India’s office sector is being chased by global investors and pension funds even as the residential sector remains subdued.
While this will be ICICI Prudential AMC’s first commercial office AIF, the firm has invested in office assets through the portfolio management services (PMS) route in the last few years. Leveraging on its experience of managing this asset class for past five years, the AMC intends to follow a research-driven approach to identify opportunities and invest in 4-6 high quality office assets.
“We believe rents are on the rise in many cities and it’s a good business opportunity to lock in properties now, which are currently available at a 10-year beaten-down valuation. Insurance companies are again investing in pre-leased office properties, REITs (real estate investment trusts) are going to happen, pension funds are investing in this sector, so the outlook is relatively good. We believe that now is the right time to make acquisitions,” said Rahul Rai, head of real estate business at ICICI Prudential AMC.
ICICI Prudential AMC joins investment managers including Reliance AIF Asset Management Co. Ltd, a unit of Reliance Nippon Life Asset Management Ltd, which launched its Rs1,000 crore rental yield fund, its first initiative to buy and own office projects earlier this year. Indiabulls Asset Management Co. Ltd also launched its first commercial asset fund and plans to raise as much as Rs1,500 crore from mainly domestic investors.
The underlying investment theme remains the same for all—to buy out office properties that generate regular stable rental income with capital appreciation on exits.
ICICI Prudential’s existing investments in office assets were made through the portfolio management service route and comprises Grade A office assets across Mumbai Metropolitan Region, Pune and National Capital Region (NCR), leased to large international tenants. Few of the investments, in the 550,000 sq. ft portfolio (valued at over Rs500 crore), are at an advanced stage of exit.
ICICI Prudential AMC has long-term plans to raise more office funds going forward and would like to pick up rent-generating assets, own and manage them, Rai said.
It’s a good time to invest in office properties, with valuations being reasonable and prices not having shot up.
“The strategy to stay away from large office assets in Mumbai and NCR is good because it is a crowded and competitive space with many global investors vying for them. For domestic investment managers with relatively smaller corpuses, there are many opportunities to buy at reasonable valuations,” said Shashank Jain, partner, transaction services, PwC India.