Global funds lap up office property in Bengaluru

Global investors such as Blackstone Group Lp and Brookfield Asset Management continue to snap up rent-generating office assets in India, despite covid-19 halting a seven-year bull run in commercial real estate.

On Monday, Bengaluru-based RMZ Corp said it has sold 12.5 million of its real estate assets to Canada’s Brookfield for $2 billion, including its shared working business CoWrks. Last week, another Bengaluru developer, Prestige Group, signed an agreement with Blackstone to sell its rental income assets for around $1.6 billion.

RMZ and Prestige, largely family run companies, would use most of the sale proceeds to reduce debt and the rest to build and operate projects.

After paying off debt, Prestige and RMZ will each have nearly ₹3,500-4,000 crore of equity to invest in growth, a person familiar with the matter said on condition of anonymity.

The investor enthusiasm comes against the backdrop of a subdued outlook for the leasing and rental business over the next two years. Analysts attribute this mainly to the success of the two real estate investment trusts (Reits) in the country. Embassy Reit’s listing in 2019 and the Mindspace Business Parks listing amid the pandemic, both backed by Blackstone as a majority and minority shareholder respectively, have improved investor confidence in the office sector.

“Investors are betting on income-yielding assets with no development risk, where yields are better than foreign countries, and occupiers are multinational firms. But more importantly, the success of Reits has been a deciding factor as it now gives them an easy and established exit route,” said Anshuman Magazine, chairman and CEO-India, South-East Asia, West Asia and Africa, CBRE.

Blackstone is the largest office space owner in India, with a portfolio of 118 million sq. ft across 44 assets in six cities.

Brookfield, on the other hand, is a newer entrant and closed its first large deal in 2014, when it bought Unitech Corporate Parks. It recently filed a draft offer document with the markets regulator to raise around ₹4,400 crore through a Reit. The IPO could be launched this year-end.

“Brookfield has nearly 40 million sq. ft of operating assets, with a strong presence in north and east, and with the RMZ deal, in south India. Unlike Blackstone, it has no joint venture partners and has 100% ownership of all its assets. Once it lists the Reit, it will only grow it further going forward,” a second person familiar with the development said on condition of anonymity.

As part of RMZ’s portfolio buyout, Brookfield will now also manage the former’s co-working business in the country.

After buying these assets, Brookfield and Blackstone are likely to spruce them up, followed by a Reit in 2-3 years, but they have long-term money and aren’t in any hurry, said Shobhit Agarwal, managing director of real estate advisory Anarock Capital.

Spokespeople for Blackstone and Brookfield didn’t respond to queries.

Property advisory JLL’s CEO and country head Ramesh Nair said developers like RMZ and Prestige had raised a lot of debt to grow portfolio and the recent sales will help them balance their leverage levels.

“The commercial sector has gone through a full cycle. To get real returns, they need to sell, and the returns can be put to growth. Globally, realty funds are sitting on $300 billion of dry powder, Blackstone and Brookfield being the two largest,” Nair said.