Office property developers seek to monetize assets as investor interest peaks

Leading commercial property developers in India such as DLF Ltd, Prestige Group, Embassy Group, RMZ Corp., K Raheja Corp. are looking to raise funds to expand their portfolio, pare debt and monetize their assets at a time of high institutional investor interest in office projects.

The companies are looking to raise equity as well as debt, either through private equity (PE) firms and global investors, or through a real estate investment trust (REIT).

DLF, India’s largest real estate firm, is looking to raise capital from PE funds for a few planned commercial projects, said a company spokesperson. Having significantly reduced its debt by selling promoters’ stake in its rental arm to GIC Pte Ltd, DLF has land parcels where it intends to develop office projects.

Bengaluru-based Prestige Group has a three-pronged strategy to monetize its commercial real estate portfolio, which includes strata sales in selective under-construction office projects to retail investors, bringing in a strategic investor for a portfolio of its under-construction projects and finally, deciding if REIT is the ideal route for its mature, yielding assets. “Our office portfolio is expanding and we have around 12 million sq ft of office space under construction and a similar amount in planning stage. These are spread across not just the south but also Pune and NCR (National Capital Region) and we are looking at different strategies to monetize them,” Prestige chief executive Venkat K. Narayana said.

This year has been crucial for the commercial real estate sector, particularly office, with large investments, increase in rentals, robust demand for space and the launch of the country’s first REIT by Embassy Office Parks. Office space deals in the first nine months touched 47 million sq ft, up 30% from a year ago, according to CBRE South Asia, and may touch with an all-time high of 60 million sq ft by 31 December.

Most office developers are investing to bolster their portfolios and are also looking to monetize their holdings to extract the maximum value.

Embassy Group, which along with Blackstone Group Lp, launched a REIT earlier this year, is now looking to divest some of its own assets to reduce debt and create cash reserves, Embassy chairman Jitu Virwani said in October.

Embassy last week extended a right of first offer (ROFO) invitation to the REIT to buy about 8.7 million sq ft of space in Embassy Tech Village in Bengaluru, that could be valued at around ₹6,000 crore. Blackstone has invested $1.6 billion in commercial realty in India from January to September.

On the REIT front, Mumbai-based K Raheja Corp., which has office parks in west and south India, is gearing up to launch its REIT early next year.

Shobhit Agarwal, managing director and chief executive, Anarock Capital, said there is strong investor interest to deploy equity in not just office assets but also rent-generating assets in retail and warehousing. This, even though there is a dearth of equity providers for residential projects.

“Rental and occupancy rates are going up, the REIT was successful, there are no defaults and all the big office developers are doing well, leading to investments happening at marginally sharper rates. Deal sizes are getting bigger. With every transaction, a new record is being created,” he said.

Bengaluru-based developer RMZ Corp. is looking to raise institutional capital, both equity and debt, for its Chennai, Bengaluru and Mumbai projects, said a person familiar with the development. An RMZ spokesperson declined to comment on the fund-raising plans.

However, Niranjan Hiranandani, co-founder and managing director of Hiranandani Group, believes that it’s a good time to hold on to mature rental assets, if there is no urgency. “...Values (of office assets) can only go up. We are not looking to monetize right now, but will look at it when we can use the liquidity to go to the next level,” he said.