Bangalore: Global private equity (PE) firm Blackstone Group Lp is poised to become the largest owner of commercial office real estate in India after an aggressive, three-year acquisition drive in which it spent $900 million ( ₹ 5,400 crore) buying prime assets.
Blackstone has acquired 29 million sq. ft of office space in cities such as Bangalore, Pune, Mumbai and Noida, on the outskirts of New Delhi. This includes 26 million sq. ft of operational, leased-out space and three million sq. ft under construction, said people familiar with the development.
To be sure, Blackstone doesn’t own a 100% stake in its real estate portfolio and has partners in some of the investments.
Blackstone hasn’t disclosed the exact stake it owns in these projects.
The New York-based PE firm’s office portfolio in India closely rivals the size of the country’s largest developer DLF Ltd’s rental assets that include both office and shopping malls. Until some time ago, DLF was the single-largest office portfolio owner in India.
DLF’s rental portfolio is about 29 million sq. ft in size, of which the office space component is made up of 24.8 million sq. ft that is operational and 1 million sq. ft under construction, according to HDFC Securities Ltd. The retail or shopping mall portfolio comprises 1.6 million sq. ft of completed space and 1.8 million sq. ft under construction.
DLF didn’t respond to e-mailed queries seeking comment.
Property analysts and fund managers stress that Blackstone has not only built such a large portfolio in as short a duration as three years, but that it has bought the best of what was available in the office segment at a price that it was willing to pay.
“We are here for the long term. We are also disciplined, patient investors. We are focused on ensuring the best in class, institutionally led portfolio," a Blackstone spokesperson said.
Blackstone opened its real estate division in India in 2007, but started buying office assets only in 2011, when not many investors were interested in the prime rental asset class. It has invested close to $900 million so far.
The effort has been helmed by Tuhin Parikh, senior managing director, real estate.
Even in the current scenario in which many PE and sovereign funds take several months to close a transaction, owing to strict due diligence and quality checks, Blackstone has managed a slew of acquisitions this year.
In September, Blackstone bought two properties—a special economic zone (SEZ) in Pune and an information technology (IT) park in Noida—from IDFC Alternatives Ltd, the PE arm of IDFC Ltd, for ₹ 1,100 crore.
Noida also happens to be the fund’s first investment in the National Capital Region (Delhi and its environs), and it is now also looking at another transaction there.
In September, Blackstone committed ₹ 200 crore for a 50% stake in a 6.5 acre project in Bangalore that will have a Four Seasons hotel and luxury homes. Blackstone, with its partner Embassy Property Developments Pvt. Ltd, bought it from Goldman Sachs Group Inc. and real estate firm Century Real Estate Holdings Pvt. Ltd.
In April, it invested ₹ 550 crore to acquire a 60% stake in Vrindavan Tech Village, an SEZ in Bangalore, to be developed by Embassy Property which invested ₹ 450 crore. In another large transaction, Blackstone, along with Pune-based developer Panchshil Realty, acquired Express Towers, a well-known office building in Mumbai’s oldest business district, Nariman Point.
It also invested in Ozone Group’s residential project in Chennai, where it bought inventory worth ₹ 175 crore.
Shobhit Agarwal, managing director of capital markets at property advisory Jones Lang LaSalle India, said Blackstone should be given a large part of the credit in generating interest in some properties when there were few takers for them.
“When everyone made investments in residential properties, Blackstone invested in office and went and bought Grade A assets," he said.
Given the large portfolio that Blackstone already owns in India, it is unlikely that the size of this will increase sharply anytime soon, owing to the limited availability of good quality office assets, said a person familiar with the matter who didn’t wish to be identified.
Blackstone’s presence and its massive portfolio in India is particularly relevant at a time when India has approved the entry of real estate investment trusts (REITs), allowing an exit route for large rental portfolio owners.
REITs typically invest in completed, yield-generating realty assets and distribute a major part of the earnings among investors. The income of these investment trusts mostly comes from the rents received from these properties.
According to consulting firm KPMG, India has an estimated 350 million sq. ft of ‘Grade A’ office space, valued at about $65-70 billion, of which about 80-100 million sq. ft is estimated to be eligible for REITs in the next 2-3 years and valued at about $15-20 billion.
The challenge for any fund with a large office portfolio such as Blackstone’s would be the exit strategy and how it plans to eventually sell its investments, analysts said.
Blackstone is not very focused on exits right now. Once the tax issues surrounding REITs are cleared, it will evaluate them seriously, said the person mentioned above.
“Blackstone has picked up some extremely high quality assets at reasonable valuations," said Rajeev Bairathi, executive director (capital transaction group and north India) at property advisory Knight Frank India.
“There could be various exit options such as a REIT listing either in India or overseas markets, through an IPO (initial public offering) or an alternative market listing," said Bairathi.