PE deals score over REITs as realtors eye fast money, avoid listing hassles

Sellers can get 100% funding immediately under PE, compared with 10-25% in REIT, whose listing process could take some time, with risk of market sentiment turning weak in between

Prestige and RMZ, two of India’s largest commercial property owners, chose to sell their assets to global investors, instead of going for real estate investment trusts or REITs. 

While the REIT route has gained prominence, the promoters opted for private deals to get the cash fast and, at the same time, avoid the hassle of listing an REIT that would have taken more than a year, said promoters and capital market experts.

RMZ sold 12.5 million sq. ft in assets to Canada-based Brookfield Asset Management for over Rs 14,000 crore, while Prestige Estates has signed an initial deal to sell its office and malls to US-based Blackstone. 

So far, two REITs — Embassy Office Parks and Mindspace Business Parks — both co-promoted by Blackstone, have been listed and Brookfield has filed draft prospects for the public issue of its REIT. 

Though DLF is also planning to float a REIT for its rental arm in 12-18 months, its promoters have already sold their stake in the DLF Cyber CIty Developers (DCCDL) to Singapore government's sovereign fund GIC. 

“We are a family business and did not want to float an REIT since the beginning, given we would have to share the rental income with investors,” said Raj Menda, chairman, RMZ. 

“We got a fair valuation (in the deal with Brookfield). We finalised the deal to become debt-free and grow our business,” said Menda. 

Though Prestige is yet to sign a final agreement with Blackstone and get approval from the Competition Commission of India, the promoters in this case, too, seek early funds instead of waiting for a year, said people in the know. 

“They are also retaining equity share in many projects,” the people added. Prestige’s management could not be contacted for comment. 

Capital market experts agreed with the promoters’ plans to sell assets to PE investors. “First, the sellers got 100 per cent funding immediately whereas in an REIT, sponsors would have divested 10-25 per cent and would have held the balance for a while,” said Nitin Gupta, managing director (MD) of Macquarie Capital. 

Second, he said, the REIT listing process could have taken up to a year, with the risk of market sentiment turning unfavourable at last moment. 

Saurabh Shatdal, MD of Cushman & Wakefield, said Covid-19 changed the mindset of developers. “To sell a commercial portfolio was the best way to bring in cash, reconcile existing debt, and watch the market perform without any liability. However, an entire ecosystem needs to be developed within an organisation to list an REIT,” said Shatdal.