Blackstone rivals DLF in office realty

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An acquisition binge has placed private equity giant Blackstone as the second biggest landlord in India’s booming office space market, emerging as a strong challenger to Gurgaon-based DLF’s leadership in a real estate segment with stable yields, data sourced from international property consultants said.

Blackstone’s appetite signals a maturing Indian market for rent yielding assets, mirroring a global trend where many iconic commercial buildings are now owned by financial investors, including private equity and pension funds.

Blackstone has spent more than $600 million in the past two years controlling about 21 million sqft of office buildings, which are tenanted or nearing a lease deal. It has another 7 million sqft of development potential in the existing assets, making it the most significant consolidator of Indian work spaces with annual yields ranging between 10-15%.

Blackstone declined to comment on the story, when contacted.

DLF has over 27 million sqft of office space, the biggest as of now, but could soon lose top slot to Blackstone, managing assets worth $200 billion globally. DLF has also been selling off assets like IT parks to pare some of its $3.5-billion debt.

Mumbai’s K Raheja Corp, Bangalore-based developers RMZ Corp and Embassy Group, and Delhi-based Unitech are among the country’s top office space landlords, each operating between 10 million sqft and 15 million sqft of space. India’s total grade A office space is estimated at over 360 million sqft.

Blackstone has strung together joint ventures with IT park developers like the Embassy Group and Pune’s Panchshil Developers, besides outright acquisition of office assets from others including DLF. It had picked up a 50% interest in Embassy’s rent yielding office portfolio of 13.5 million sqft, while holding a large stake in Panchshil’s 4 million sqft park.

More buyouts are in the offing with final talks underway to acquire South Mumbai’s Express Towers, as reported by TOI in May this year.

Blackstone is also in the reckoning to buy a large stake in Bangalore’s Vrindavan Tech Village with 2.1 million sqft of tenanted office space, with potential to develop additional 10 million sqft. Similarly, it has also been working on a possible takeover of Unitech’s 3.6 million sqft IT special economic zone in Dundahera

“Private equity firms, pension funds and real estate investment trusts (REITS) own close to 80% or more of the office space market in most mature markets around the world,” said Anshuman Magazine, CMD, CBRE South Asia. India’s office space market is still heavily fragmented given that some developments could have between 70 to 100 landlords.

“Since bank funding wasn’t readily available in the mid-90?s developers pre-sold their office spaces to fund construction costs. This trend is changing now given that developers are looking to build large office space portfolios, which in turn attract interests from institutions like Blackstone,” Magazine added.

Global investors wanting to dabble in India’s volatile, and often opaque, real estate market are settling down for commercial assets, housing MNC clients, given its low risk and stable yields. The highest rental yields among emerging markets and the possibility of Indian REITs taking off have fuelled the interests of bulge bracket investors like Blackstone, GIC of Singapore and Canadian Pension Plan.

“You’re going to see many more international fund houses up their interest in commercial buys. The country still faces a shortage of FDI-compliant office space assets and bank funding isn’t quite favourable to commercial real estate,” said Anuj Puri, chairman and country head, Jones Lang Lasalle.

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