BKC deal puts Blackstone far ahead of rivals in office property space

Blackstone’s deal for about 650,000 square feet of office property in the Bandra Kurla Complex, Mumbai, at Rs 2,600 crore, the largest of its kind in the country this year, puts the firm far ahead of its competitors.

Blackstone is India’s largest commercial-property investor, owning 70 million square feet. 

The US-based private equity (PE) fund manager has come a long way since it bought a 35 per cent stake for Rs 35 crore in Bengaluru-based property management firm Synergy Property Development Services in April 2008, its first investment in real estate in the country.

Blackstone owns more than double the size of office assets of DLF, the country’s largest listed developer, which has 33 million square feet. Blackstone has invested more than $6 billon in office assets. It, along with its partners, owns 115 million square feet, including under-construction projects. 

Blackstone is also way ahead of its global rival Brookfield Asset Management, which owns about 25 million square feet of commercial property. While Blackstone has bought mostly completed assets, Brookfield has purchased brownfield assets such as those of infotech parks of Unitech Corporate Parks.

Blackstone did not reply to an email on the subject.

Early entrant

Blackstone jumped into the fray and steadily built its real-estate portfolio when global funds such as Goldman Sachs, Marathon, Lehman Brothers, and Wachovia exited Indian property investments after the global financial crisis. 

In 2010, Blackstone bought Bank of America Merrill Lynch’s $2-billion Asia real-estate portfolio, which included Indian properties worth $400 million. After that, it focused on buying low-risk, fixed-income infotech parks and office properties.

More significantly, it formed a joint venture (JV) with the Embassy group of Bengaluru, which owned marquee assets such as Embassy Golf Links, Embassy Manyata, and other properties in the city. Today the JV, Embassy Office Parks, owns office space of 33 million square feet, which includes assets such as Express Towers, 247 Park, and FIFC in Mumbai.

Blackstone bought assets at low rates in the last 10 years before global players like Brookfield, Allianz, and the Canada Pension Plan Investment Board entered the scene, increasing valuations and reducing yields.

“Blackstone started buying assets when there was less competition and valuations were lower. Its bets paid off with good growth in rental income and capital values over the years,” said Suresh Castellino, executive national director, capital markets and investment services, Colliers International India.

Castellino said rental values and capital values had gone up more than 20 per cent in the past seven-eight years.

“It mostly bought completed assets, where there is no development and construction risk,” he said.

Shobhit Agarwal, managing director at Anarock Capital, said Blackstone had been earning good rental income over the years with varying degrees of rental yields.

“Their earlier buys were at a 12 per cent yield and recent ones are at 8 per cent,” he said.

Exits via REITs 

Castellino said the development of the real estate investment trust (REIT) market, which gives an exit to investors in commercial properties, had helped Blackstone become aggressive. Blackstone, along with the Embassy group, listed the country’s first REIT and raised Rs 4,750 crore and another Rs 3,000 crore via a private placement of debentures.
 

Blackstone-backed Embassy Office Parks REIT has delivered returns of more than 20 per cent since its stock market debut on April 1. The gains have outperformed the benchmark Sensex and the BSE Realty Index. According to sources, two of Blackstone’s JVs — with K Raheja Corp and Panchshil Realty — could form REITs. Blackstone bought a 50 per cent stake in Indiabulls Real Estate’s office buildings in Mumbai.

“Its strategy of tying up with large players in different regions has paid off. Today they own marquee assets in cities such as Mumbai and Bengaluru,” Castellino said.

Apart from Infotech parks and office assets, Blackstone has built a portfolio of nine malls. It has bought malls in tier 1 cities such as Mumbai and Pune and tier II cities including Chandigarh, Indore, Bhubaneswar, and Amritsar in the past three years.

According to sources, it is looking to enter the logistics space and in talks with landowners.