Blackstone begins to consolidate office assets

Valuation of close to Rs 25,000 crore with those of partners, one of which says process could take a year more

Blackstone, the largest alternative assets manager in the world, has started discussion with partners and its bankers on consolidating its office properties in this country, with the idea of floating a real estate investment trust (Reit), said a senior executive.

Blackstone and its partners, the Bengaluru-based Embassy and Pune-based Panchshil, own about 35 mn sq ft of office properties, valued at Rs 24,500 crore ($3.65 billion), said the executive. "It could be a $2-3 bn issue (Rs 13,500 to Rs 20,000 crore)," said the executive. If the Reit comes out, it would beat the initial public offering size of DLF, the country's largest property developer. That had raised Rs 9,180 crore in 2007.

On Friday, the Securities and Exchange Board of India (Sebi) proposed relaxation of norms for launching Reits. The Sebi board approved removal of restrictions on a Special Purpose Vehicle (SPV) to invest in other SPVs holding assets. It also allowed a Reit to invest up to 20 per cent in under-construction projects, while easing the criteria for related-party transactions and allowing more sponsors in such a Trust.

A Blackstone spokesperson said: "As a matter of policy, Blackstone does not comment on market speculation." "We are discussing whether to bring out only the Blackstone-Embassy portfolio or the entire portfolio. If the entire portfolio is out, it would be a much bigger issue," said Jitu Virwani, chairman at the Embassy group. Embassy Office Parks, a joint venture between Embassy and Blackstone, has a portfolio of 22 million sq ft. Blackstone owns two to three mn sq ft of office property in the country. Its other partner, Panchshil, owns about 10 mn sq ft. "We are trying to put together everything. It will take 10 to 12 months for listing," said Virwani.

The executive quoted had said there was a question around the name of the issue but Virwani said it would come under the Embassy name. "If Blackstone is sponsor, it would bring a lot of credibility and give comfort to international investors," said the executive.

Blackstone has bet more on Indian real estate than private equity (PE). According to data released by the US company last December, of the $5.1 bn (Rs 33,900 crore) it has invested here, $2.7 bn (Rs 17,900 crore) is in real estate, in 18 transactions. As against $2.4 bn (Rs 15,900 crore) across 21 deals in PE since 2006. The money put by Blackstone in Indian commercial properties is the largest by any PE here, consultants said. It manages assets of $93.2 bn in real estate globally, as against $91.5 bn in PE. Blackstone managed a record $333.9 bn in assets globally as of the end of September 2015.

According to realty consultancy JLL, 80-100 mn sq ft of office space in the country, worth at least Rs 100,000 crore, could qualify to be included under Reits. These assets could together generate a rental of Rs 6,000 crore annually. "If we assume even 50 per cent of these get listed, we are looking at total Reits listing worth $18.5 bn," recently said Anuj Puri, chairman, JLL India.
FACT SHEET

• The size of the Reit issue could be between $ 2 bn and $ 3 bn
• Blackstone and its partners - Embassy and Panchshil - own about 35 mn sq ft of office properties
• Valuation of these properties is estimated at $ 3.65 bn
• Embassy Office Parks, a joint venture between Embassy group and Blackstone, has a portfolio of 22 mn sq ft.
• Blackstone owns 2-3 mn sq ft of office properties and Panchshil owns 10 mn sq ft in the country
• According to data released by the US company in December last year, of the $5.1 billion it has invested here, $2.7 bn is in real estate