Blackstone-BofA-ML deal shouldn

The Indian investments of one of the most high-profile of Asian real estate private equity funds, the $2.68 billion Asian Real Estate Opportunities Fund of Bank of America-Merrill Lynch (BofA-ML), is unlikely to get affected, though the Asian portfolio is changing hands globally, two independent sources told Business Standard.

Blackstone, one of the biggest PE groups in the world, is in advanced negotiations to take over the management of the Asian real estate investments of BofA-ML, it said in a letter to its investors late last week. 

The current Asia portfolio of BofA-ML is estimated to be $3.5 billion (including debt), invested from Merrill Lynch before its merger with BofA and from third-party sponsors like AXA, Real Estate Investment Management and other family offices of Europe and America. This portfolio includes the $2.65-billion Merrill Lynch Asia Real Estate Opportunities Fund (MLAREOF) that was raised in 2007-08, one of the largest Asia-focused real estate funds, which also had an India allocation of close to $600 million (Rs 2,800 crore). 

“First, you need to realise it’s not a done deal. Yes, the two are talking to each other, but the closure is yet to happen,” said a BofA-ML official who has direct access to the negotiations, on condition of anonymity.

Tuhin Parikh, managing director, real estate, Blackstone Advisors India, declined to comment. Nipun Sahni, MD, Merrill Lynch Asia Real Estate Opportunities Fund, was out of the country. Akhil Gupta, senior managing director of Blackstone Group and the Chairman of Blackstone India, did not respond to Business Standard’s email query.

However, sources say nothing much will change in India. “Merrill Lynch had formed an asset management team headed by Mr Sahni which managed all the investments made by MLAREOF. This team had an asset management contract with ML and the third party sponsors under which they could manage the investments and earn the management fee and the carry. What will simply happen is that only the contract will get transferred to Blackstone. Nothing else changes… BofA-ML will also continue as a general partner to the fund… the ownership of the third-party funds from different sponsors will also not change,” said one of the sources. 

Talks still on
The two teams from Blackstone’s own real estate fund and that of BofAML are likely to get amalgamated across Asia, even though there is still no finality to it. The funds, too, are not willing to come on record to talk about manpower integration. 

ML had made nearly half-a-dozen investments in India, the most high-profile one being its $377-million (Rs 1,800 crore) investment in DLF’s housing projects. It picked up 49 per cent stake in seven mid-income housing projects of DLF, the country’s largest property company in Chennai, Bangalore, Kochi and Indore. The deal was one of the biggest PE deals in real estate till date. 

When asked, a senior DLF executive said: “Only management change has happened. The investments will continue as usual. The projects have generated good returns for the investors.’’ 

Merrill Lynch also has 49 per cent stake in the Gurgaon IT project of Delhi-based BPTP Ltd, which it picked up in 2007 for Rs 112 crore. However, Merrill and BPTP are in talks with investors to sell the project, according to a person involved in the deal. 

ML had also pumped in $50 million in the projects of Pune-based Panchshil Realty. Atul Chordia, chairman of Panchshil Realty, did not respond to calls on the subject.

However, till date, Blackstone has made only one realty investment in India. In 2008, it picked up a minority stake in Bangalore-based construction management firm Synergy Property Development Services Pvt Ltd for $18 million.

Analysts do not think Blackstone would further build BofA ML’s Indian real estate portfolio. “I do not think that Blackstone will put in new funds in the portfolio. It is just a opportunistic buy. I do not expect new fund flows or investments from them in that,’’ said Amit Goenka, national director, capital markets at UK-based Knight Frank. 

Last year, New Delhi-based Red Fort Capital, along with Sumitomo Mitsui Banking, part of Japan-based Sumitomo Mitsui Financial, showed interest in bidding for Merrill Lynch’s Asia assets. However, the PE company did not pursue the matter.