” Private equity (PE) funds in India are building up portfolios of income-producing real estate assets as the country prepares to allow listing of Real Estate Investment Trusts (REITs)”…
Among the firms that are either building or planning to invest in such assets are Redfort Capital, Golden Estates, Kotak Realty Fund and Blackstone Group along with its developer partners, and Tata Realty and Infrastructure.
REIT is a type of security that is sold like a stock on an exchange and invests and owns real estate assets that produce a stable rental income for shareholders. The advent of REITs will give builders an opportunity to monetise their income-producing assets. It will help builders to raise money for their projects and provide an easy exit option to investors.
“Although India is not yet a significant player in the regional real estate investment market, going forward, we expect the entry of REITs to provide alternative funding channels to the realty sector,” said managing director at CBRE South Asia, a property advisory firm. ” This might trigger strong growth in the sector’s investment volumes”.
Late last year, the capital market regulator circulated the draft guidelines for permitting REITs. These are now awaiting final clearance.
“A forward looking legislation on REITs will be a key enabler for capital markets in the country, and shall be the single most consequential reform witnessed in the sector in recent times,” says in a recent report of CBRE South Asia.
Red Fort Capital that controls investments in some of the top core and core-plus office developments in India is looking to set up an REIT structure in mature markets like the US, as well as in Singapore and India. The fund that has invested $1 billion with several successful exits, has added experienced senior executives that indicates its plan.
“The global appetite for yield hasn’t abated, and India is one of the few markets where you can still get high yield in major cities for great institutional quality developments with long, high quality leases…The REIT structure should provide significant value and liquidity in the markets for investors and we expect the core and core-plus office platform to be a significant strategic business for us,” said principal (capital markets) at Red Fort Capital.
Among the firms targeting for REIT listing include the US private equity giant Blackstone.
The fund, along with real estate firm Embassy Group, is buying commercial properties across cities like Bangalore, Delhi and Chennai. They have also roped in Mike Holland as CEO of Embassy Office Park, an equal joint venture between Blackstone and Embassy Group before it goes for REIT. Embassy is looking to double its portfolio to 40 million sq ft over the next six months by acquiring assets across the country.
Domestic funds like Kotak Realty Fund, which invests in residential portfolio, is also firming up plans to build a portfolio of income producing assets through a separate vehicle.
” It is a big opportunity as the total market for income-producing assets in India is around 45 million sq ft. With an average price of Rs 6,000 per sq ft, assets value of this market will be Rs 270 billion,” said CEO at Kotak Realty Fund, which is yet to fix a timeline and other details of the fund.
Others like Golden State Capital is planning to set up an REIT in Singapore as India is yet to give its final clearance. The company is looking at office assets in places such as Bangalore, Hyderabad, Chennai, Mumbai, Pune and the National Capital Region. “Given where India is poised to eventually grow to, the tangible asset stands to gain on long-term capital price appreciation as well as rental growth. There are lots of Grade A commercial office opportunities that India presents and this would only accentuate with increasing demand for quality space,” said CEO at Golden State Capital.
Qatar Investment Authority, which has backed family-owned RMZ, is looking at a portfolio of 20 million sq ft of office space before it goes for listing. QIA will back RMZ to buy IT parks worthRs 3,000 crore. Jointly, both partners will look at acquiring commercial spaces across Bangalore, Hyderabad, Chennai and Pune.