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Blackstone in talks to buy $525 million IL&FS real estate fund

Blackstone is a leading owner of office space in India, spanning over 30 million square feet across all major cities. Photo: Abhijit Bhatlekar/Mint

The Blackstone Group Lp, the US-based global private equity firm, is in talks to acquire ILFS India Realty Fund I, a $525 million real estate fund owned by IL&FS Investment Managers Ltd (IIML), two persons aware of the development said. IIML is a unit of Infrastructure Leasing & Financial Services Ltd (IL&FS).

The deal will be signed through Blackstone India Real Estate Advisors, the Indian realty arm of the New York-based Blackstone.

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Blackstone is a leading owner of office space in India, spanning over 30 million square feet across all major cities.

ILFS India Realty Fund I, one of the first real estate focused funds in India, was launched in 2005. It made about 17 investments, out of which it exited six portfolios.

Major portfolios of ILFS India Realty Fund I include ETL Infrastructure Services Ltd, ($48 million invested in 2006) and QVC Realty Ltd. ($100 million invested in 2008).

Jones Lang LaSalle (JLL) India advises ILFS to sell the realty fund, the first person mentioned above said on condition of anonymity.

ILFS India Realty Fund II, with a corpus of $895 million, was raised in 2007 and has invested in 28 portfolio companies including Kohinoor CTNL Infrastructure Company Ltd and GK Industrial Park Pvt Ltd.

The major portfoilos of IL&FS real estate funds include Gurugram-based Ansal Esencia, Chennai-based Pacifica Aurum, Bengaluru-based Phoenix Market City and Bhartiya City, Mumbai-based Indiabulls Blu, Wadhwa Address and Pune’s Amanora Towers.

A present, IIML has six real estate funds with about $2 billion under management and commitments aggregating $1.8 billion in 74 transactions across India.

Spokespersons at Blackstone and IL&FS declined to comment.

“When the first fund is on an exit mode, it would be ideal for IL&FS to sell all the portfolios in a single deal,” said the second person mentioned above, also on condition of anonymity.

Several of IL&FS real estate funds are in exit mode – including the $117-million IL&FS Milestone Fund I and $103-million Saffron India Real Estate Fund I. Both were launched in 2008.

In 2015, Blackstone entered into an agreement with IL&FS Milestone Fund, whereby Blackstone acquired 74% stake owned by IL&FS in 247 Corporate Park, in Mumbai’s eastern suburbs. Hindustan Construction Company Ltd owned 26% in 247 Corporate Park.

Blackstone has invested about $3 billion in real estate projects in India across 20 transactions and manages the largest portfolio of office parks in India.

Blackstone opened its real estate division in India in 2007, hiring Tuhin Parikh as senior managing director. Parikh, a former chief executive of TCG Urban Infrastructure Holdings Ltd., a national level office developer and asset owner in India, has strengthened Blackstone’s India presence through buying several office assets and malls across the country since 2011.

In one of the largest real estate investments, Blackstone had in 2014 acquired a 50% stake in Bengaluru-based Embassy Holding Company which owns 20.9 million square feet across three Class A office parks in India.

Blackstone is also acquiring a 15% stake in K Raheja Corp’s, commercial real estate business for around $250 million. Blackstone plans to float two separate real estate investment trusts (REITs) for its office assets with its partners- Embassy Group and Pune-based Panchshil Realty.

Besides its investments in office space, Blackstone Group has widened its footprint in India through a series buyouts of shopping malls. Last year, it acquired a 50% stake in Westend Mall in Pune, which houses brands such as Cinepolis, H&M, Max, Shoppers Stop and Starbucks. It had acquired L&T Seawoods Mall in Navi Mumbai from L&T Realty, last year. In 2015, it bought two AlphaOne malls in Amritsar and Ahmedabad from Alpha G:Corp. It is in discussions to acquire Elante mall from Carnival Group in Chandigarh.

Blackstone LP, one of the largest owners of office space in India, is readying a new Asia-focused real estate fund that aims to raise a record $5 billion or more, betting on strong returns from property investments in the region, according to a January report by Reuters.

The world’s biggest alternative asset manager will likely launch the fund in the next 12-16 months, and it has invested more than 70% of the $5.08 billion it raised in its first Asia-focused property fund, Reuters said.

According to a 2016 report by JLL India, private equity investments in Indian real estate in 2016 increased by 62% to Rs38,000 crore as compared to Rs23,500 crore in 2015, out of which Rs13,500 crore was invested through pure equity while the rest was through structured debt.

The year 2017 is expected to be one of fructification, when the results of all regulatory and policy initiatives taken in 2016 begin to take shape. Most key initiatives, such as the Real Estate Regulatory Authority (RERA), the Goods & Services Tax (GST) and Real Estate Investment Trusts (REITs) are primarily aimed at improving transparency and boosting investor confidence in India’s real estate sector at large, said a June 2017 JLL India report.

“In anticipation of the first REIT listing in 2017, institutional investments in corporate real estate are likely to remain positive. Inflows into commercial office assets in 2017 are expected to rise above Rs20,000 crore ($3 billion), on the back of healthy investor interest in leased office assets,” said the report—Return of the Investor.

[Source”cnbc”]