Morgan Stanley, ex-employees' fund bet on India's warehousing space

Morgan Stanley and a fund management company set up by its former executives are getting aggressive in the country’s warehousing space.

Morgan Stanley, which discontinued investing in the real estate sector a couple of years ago, has bought majority stakes in a warehousing developer and other such projects this year. 

Recently, Morgan Stanley Real Estate Investing (MSREI), the real estate investment management arm of Morgan Stanley Investment Management, purchased a controlling stake in warehousing project built by the Pragati Group in the National Capital Region (NCR) region. 

The 30-acre project is located on NH 8 and branded as Pragati One.

Earlier this year, MSREI bought a majority stake in KSH Infra, a Pune-based warehousing and industrial logistics park developer. KSH Infra operates two warehousing and industrial logistics parks in Pune. The warehouses, with a total area of one million square feet, are leased out to bluechip multinationals.

Morgan Stanley has also set up a platform with Bengaluru-based developer Puravankara Projects for industrial parks.

“They are also evaluating other opportunities in the space,” said the sources, adding that the fund manager could also tap the real estate investment trust or REIT space in the future.

Though Morgan Stanley inked residential real estate deals earlier, it is now focusing only on rent-yielding assets, sources said. A mail sent to Morgan Stanley did not elicit any response.

Interestingly, Proprium Capital Partners, a real estate fund manager set up by former Morgan Stanley executives, is also focusing on the same segment. Proprium, which was spun out from Morgan Stanley in March 2013, is looking to set up three joint platforms with companies to develop warehouses in the country, said sources in the know.

Proprium will invest $25 million to $30 million each in the platform and scale it up later, sources said.

“They have signed term sheets and due deligence is currently on,” said sources. A mail sent to Proprium did not elicit any response.

The sources said Proprium has already put in $150 million into an existing platform with Hyderabad Scalar Spaces. They added that the Proprium Scalar platform will be scaled up to 12-15 million sq ft in 12 to 24 months from four million sq ft now.  “They want to grow the platform and take it to REITs (real estate investment trusts) or sell it to another private equity fund,” sources said. A mail sent to Proprium did not elicit any response.

Proprium’s combined assets under management are around $2 billion. The logistics industry is around $160 billion and is growing at a compound annual growth rate (CAGR) of 10.5 per cent. It is likely to touch $215 billion in the next three years, according to the government estimates. Global investors such as CPPIB and Warburg Pincus have invested in the warehousing space as the country adopted goods and services tax, which unified all markets. A rise in e-commerce has led to increase in the warehousing space in the country. 

“It is an emerging asset class and many good things are happening in the segment. They (investors) are betting on the right segment,” said Shobhit Agarwal, managing director at Anarock Capital.