Blackstone-Embassy REIT game changer for India’s real estate sector

Bengaluru/Mumbai: The initial public offering (IPO) of Blackstone Group Lp-sponsored Embassy Office Parks real estate investment trust (REIT) opens on Monday, in a game changer for India’s real estate sector and a leap forward for the New York-based investor which opened its India real estate division in 2007.

This would be India’s first real estate investment trust or REIT.

The Embassy Office Parks REIT includes Blackstone’s own assets as well as those in partnership with Embassy Group, comprising 33 million sq. ft across Mumbai, Pune, Bengaluru and Noida, 24 million sq. ft of which is completed and 95% leased. This includes 11 assets—seven office parks and four buildings.

It plans to raise ₹4,750 crore (including the anchor allocation) from its 18-20 March IPO. On Friday, Embassy Office Parks REIT raised ₹1,743 crore by allocating units to institutional investors as part of its so-called anchor book allocation, according to stock exchange filings.

“REIT brings India’s real estate market into the big league and will see new capital coming in. It’s important for new money to enter the system and a new financial product coming into the market for retail investors. That the REIT is led by Blackstone brings a lot of credibility and opens up a big opportunity for foreign investors,” said Shobhit Agarwal, managing director and chief executive of Anarock Capital, a property advisory.

The anchor subscription book was led by foreign institutional investors (FIIs) such as Fidelity International, Capital Group, TT International, Schroders and others.

Agarwal says most of the anchor investors in this REIT are US-based, and this is an entirely new pool of money coming into the real estate market.

“...Blackstone is playing the role of being the fiduciary to the investors and has an eclectic list of investors including large sovereign and pension funds across the globe,” he said.

Blackstone is India’s largest owner of commercial real estate, with over 100 million sq ft of space, and has committed to invest $5.4 billion across 33 investments in real estate. Of this, nearly $4 billion is in office space alone.

Ambar Maheshwari, CEO (private equity), Indiabulls Asset Management Co. Ltd said the REIT is significant for Blackstone because it allows for a great exit route and for good developers, paves way for more institutional capital.

“The REIT promises more transparency into the real estate sector and provides a benchmark. If this goes through successfully, there are a slew of developers waiting to go down this path. Retail investors, who so far have bought office space directly can now invest through this route, which is somewhere in between pure equity and debt,” Maheshwari said.

“REIT is one of the most credible ways for monetising assets. So it’s a great way for foreign investors like Blackstone to realise their investments. Secondly, it opens up a good financing opportunity from retail investors for developers to build good assets. This (REIT) will also take away a lot of pressure on the banking system. What REIT is going to do is replace LRDs (lease rental discounting) and increases liquidity for the banks but it also provides liquidity for office owners or builders who are developing the office buildings by putting those assets into REIT,” said a senior executive with a global investment firm, who requested not to be named.