Private equity investment in India's commercial realty on an upswing

Various private equity (PE) players such as Xander, Blackstone and Brookfield, are sharpening their focus on the Indian real estate industry, especially the commercial segment, with several large transactions recorded in the country so far, in 2018. There has been an expansion of business and companies, both, multi-national companies (MNCs) and domestic, are taking up more space for expansion.

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There have been several developments that have boosted the prospects of investment in the commercial real estate market, like the logistics sector getting infrastructure status, allowance of 100 per cent FDI in e-commerce marketplace and comprehensive tax reforms, like the Goods and Services Tax (GST).

Major private equity investments in Indian real estate

There have been many noteworthy transactions in the commercial real estate segment by PE firms. These include Blackstone’s deal to buy IndiaBulls Real Estate Ltd’s 50 per cent stake in prime commercial assets in Mumbai for about Rs 4,750 crores. Another PE fund, IndiaBulls Dual Advantage Commercial Assets Fund, concluded its first deal, by buying an office tower in Gurugram from real estate firm Hines India. A similar deal was struck when Ghodawat Enterprises sold its completely leased building by the name of ‘Pinehurst’, to an overseas fund for around Rs 350 crores.

Even Godrej Fund Management is eyeing a larger pie of the commercial real estate growth story of the country. Godrej Fund Management has announced the first close of its office development fund, worth USD 450 million and also the first close of its office investment fund worth USD 150 million. The two funds put together, can invest/develop office space assets worth over USD one billion in value.

Top segments and cities where PE funds are investing

Industrial warehousing, an important sub-segment of the commercial real estate sector, received PE investments of Rs 350 crores in a logistics park in Chennai, through a channel formed between Firstspace Realty and Ascendas Singbridge. Paucity of good commercial projects and the steady growth of the Indian economy, are causing a lot of PE funds to consider investing in the segment, with many of them investing in such projects from the early stages of development itself. Such investments give an almost immediate scale to investors, apart from providing exposure to the development pipeline of the company they invest in.

While Mumbai maintained its numero-uno position, in terms being an attractive destination for commercial real estate investment, there are a number of tier-2 and tier-3 cities, where PE funds are investing like Noida, Gurugram, Indore, Mohali, Surat, Vizag, Coimbatore and Ahmedabad. In the growing real estate market in India, PE funds have been making good money and exiting, after deriving handsome profits. PE firms have been investing in India for some time now but it is in the recent times that they have been making strategic investment and doing large transactions.

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