Blackstone drives India private equity shift from home to office

Unitech

28/02/2013 03:18

(Repeats story with no changes to text) 
    * Private equity funds still seek longer-term exposure to 
Indian property 
    * Commercial property offers steady rental income as unsold 
homes mount 
    * Blackstone in talks to buy Gurgaon special economic zone 
for $440 mln - sources 
 
    By Aditi Shah 
    MUMBAI, Feb 28 (Reuters) - Blackstone Group LP    is 
driving the migration of private equity money into India's 
commercial real estate after the global financial crisis cooled 
the country's once-ardent residential segment and the number of 
unsold new homes surged.  
    Since 2005, when India opened its property sector to foreign 
investors, money has mostly poured into housing because of 
simpler investment rules while sales of finished homes provide 
private equity funds a clear exit. But with Indian home prices 
down between 5 and 30 percent since 2009, some investors are 
moving into commercial assets that yield steady rental income 
and limiting their exposure to the volatile residential market. 
    Despite a limited supply of commercial real estate open to 
foreign investment and a lack of exit options, many investors 
such as Morgan Stanley    and Rothschild-backed Xander Group 
Inc are eager to grab a bigger slice of India's property market 
due to the country's fast-growing economy, the promise of 
double-digit returns and attractive valuations.  
    "We waited till valuations got a bit softer and more 
attractive. And now, we are going aggressive," Akhil Gupta, 
chairman of Blackstone India, said in an interview. "We have 
done a few large deals, and are looking to infuse more capital." 
    Blackstone, the biggest global private equity property 
investor, is the most active in India and has spent $500 million 
on about 20 million square feet (1.8 million square metres) of 
leased assets over the past 18 months. 
    It is now on the hunt for more.  
    Most of Blackstone's India acquisitions are made jointly 
with Embassy Group, a Bangalore-based developer that invests 
largely in South India.  
    The duo is in talks to buy a special economic zone in 
Gurgaon - the booming satellite city outside the capital New 
Delhi - for about 24 billion rupees ($440 million), two sources 
with direct knowledge of the matter told Reuters earlier this 
month. That would be India's biggest private equity real estate 
investment since 2008.  
    Owned by Unitech Corporate Parks    and developed by 
Delhi-based Unitech Ltd   , the special economic zone has 
3.7 million square feet of leased offices and potential to 
develop another 1.8 million square feet, sources have said. 
    The deal would follow Blackstone's recent agreement, 
according to a Reuters report, to buy a technology park in 
Bangalore, along with Embassy and a domestic property fund, for 
around $367 million.     
    Blackstone and Embassy declined to comment.  
    As of last year, investment in Indian property by private 
equity funds totalled $1.95 billion, with 57 percent of it in 
commercial assets. That compares with $9.8 billion in 2007, when 
most of it was in residential projects, according to 
Chennai-based data firm Venture Intelligence.  
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
    GRAPHIC: Property investment in India 
     
    GRAPHIC: Unsold homes in India on the rise 
     
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
    
    LIMITED POOL 
    The value of commercial property being built in India has 
risen to around $42 billion today, still just a third of the 
value of homes under construction, compared with $34 billion in 
mid-2010, according to property consultant Jones Lang LaSalle. 
    Not all of this can be bought by overseas funds as Indian 
rules allow them to invest only in technology parks and special 
economic zones. Also, foreign property investors cannot sell for 
three years. 
    Rising competition for the limited pool of income-producing 
assets has pushed rental yields - annual rental income divided 
by the cost of the asset - down to about 10 percent from 12 to 
13 percent, investors say. 
    Exit opportunities for funds are also few, as India does not 
yet permit publicly listed real estate investment trusts 
(REITs), although it is considering allowing such vehicles, 
which pool income-generating assets. That means investors 
looking to cash out can form private REITs, list the assets as 
REITs in places such as London and Singapore, or sell to another 
investor. 
    Morgan Stanley, which has made several residential property 
investments in India, is in talks to invest $186 million in its 
first office development in the country, in Mumbai's 
Bandra-Kurla financial district, Reuters reported recently.  
    For residential projects, where returns can be higher, 
Morgan Stanley will stick to projects where approvals are 
largely in place and land has been acquired, said Shirish 
Godbole, managing director at Morgan Stanley Real Estate 
Investing (MSREI) India. 
    Returns on leased assets are between 14 and 16 percent, 
compared with residential development projects that return 19 to 
21 percent, according to Jones Lang LaSalle. 
 ($1 = 54.4950 Indian rupees) 
 
 (Additional reporting by Indulal P.M.; Editing by Tony Munroe 
and Ryan Woo) 
 ((aditi.shah@thomsonreuters.com)(+91-22 6180 7231)(Reuters 
Messaging: aditi.shah.thomsonreuters.com@reuters.net)(twitter: 
@aditishahsays)) 
 
Keywords: BLACKSTONE INDIA/PROPERTY