Global PEs home in on retail assets in India

Blackstone and GIC buy out malls as yield from office space suffers

Blackstone, with over $330 billion assets under management (AUM), has of late started lapping up retail assets in India. In December, it acquired two retail assets of Alpha One Malls in Ahmedabad and Amritsar. With this, it has invested about Rs 800 crore in about 1.2 million square feet. Now, Blackstone is close to announcing its second buyout in the retail space. This comes close to Singapore's sovereign fund GIC buying out a 50 per cent stake in Thane's Viviana Mall last month.

“The investment giant has finalised a deal with L&T Realty to buy out more than 1 million square feet of retail space at Seawoods Grand Central, Navi Mumbai, valued at about Rs 1,400 crore,” said a person familiar with the development. “The commercial negotiation for the deal is over and Blackstone is doing the due diligence for the property,” he said, pointing out that there were more such investments planned by it in the near future. Blackstone declined to comment for the story. L&T Realty executives were not available for comment.

Blackstone, which set up its office in India in 2006, has invested $6 billion in the country across private equity and real estate assets. Late last year, the firm said it planned to invest $2 billion by 2020 across private equity and real estate assets in India. This month, it acquired a controlling stake in IT company Mphasis from its owner Hewlett Packard Enterprise for about $1-billion. With this, Blackstone has $3.3 billion AUM for its PE business. For the real estate assets, it has $2.7 billion AUM across 19 properties, including IT parks, corporate office complexes and residential properties. But now it has started adding retail space to this portfolio.

“Shopping centres as an asset class had not really taken off in India because of high capital investment and the economic environment in the last three to four years," said Sanjay Dutt, managing director, Cushman & Wakefield India. “At a time, when the office segment is becoming very competitive and the yields are going down, retail is a good opportunity where Blackstone will have the first-mover advantage,” he said.

Investment companies such as Blackstone and the Canadian Pension Plan Investment Board invest in leased income generating properties like office, retail or industrial globally. Office space is the biggest and the most matured real estate sector in India as tenants are multinational corporations, who provide a high level of assurance for rentals.

But, globally shopping centres are one of the biggest and highest yielding assets in real estate. This is because it gives a good quality asset manager room for enhancing rental and revenue share by improving promotion and tenant mix. “Majority of shopping centres built in India during first and second generation of development phases are from today’s standard very small, not well-designed and not well-managed. That is why they are not doing well. But international retailers are craving for good quality space and that's why it is an opportunity for Blackstone,” said Dutt.

Blackstone is certainly not alone with its investment plans for malls. GIC, one of the world's biggest investors with over $100 billion in assets in over 40 countries is also looking for more such assets in India. It is also one of the top 10 real estate investors in the world. Last year, GIC bought 40 per cent interest in five US malls as part of deals involving $5.4 billion worth of real estate.