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Blackstone teams up with Embassy Group for India’s first Real Estate Investment Trust (REIT)

The country’s much- awaited maiden real estate investment trust (REIT) is set to debut almost four years after the rules were notified and government initiated efforts to improve regulations to global standards

Embassy Office Parks, a joint venture of US private equity firm Blackstone Group and Embassy Group, is to file documents with the Securities and Exchange Board of India (SEBI) on Monday– proposing to raise over $690mn through this route, stated two people with knowledge of the development.

Apart from being India’s first, the Blackstone-Embassy REIT will be Asia’s largest in terms of office portfolio area, more than twice the size of others in the continent.

This will make India join the league of global REIT markets such as the US, UK, Singapore, Japan, Australia and Canada. Embassy office parks will list 33mn sq ft of office real estate portfolio under the REIT – of which 24mn sq ft has been completed and has 95% occupancy, with the remainder being under construction.

The company earns annual lease rentals of over $275mn from tenants including Google, JP Morgan, Microsoft, Cisco, IBM, Wells Fargo and Mercedes Benz. It has more than 150 tenants – over half of which are Fortune 500 companies.

Experts predict that RETI would lead to further formalization of Indian real estate as more global institutional funds will be more keen to invest in the country given the new liquidity avenue.

Rajiv Memani, chairman of EY India, stated: “REITs will provide the much-needed option to inject growth-oriented equity capital into the Indian real estate sector.”

“Since 2011, Blackstone has been a pioneer in identifying office space as an investment opportunity and been one of the largest investors in this segment.” He added.

The proposed REIT portfolio includes over 70 assets in Mumbai, Bengaluru, Pune and the National Capital Region (NCR). Additionally, Blackstone has included its own commercial assets such as Express Tower in Nariman Point, part of the First International Financial Center in the Bandra-Kurla Complex and 247 Park at Vikhroli in Mumbai in the portfolio.

“The portfolio, both in terms of size and rental income, is much bigger than the earlier plan as Blackstone has contributed a few of its marquee income-generating assets. Majority of the assets in the REIT have been stabilised,” stated one person.

Blackstone and Embassy Group have declined to comment on the matter so far.

Property consultants have stated that a majority of the lease contracts that were entered into, were a few years ago—priced at about 35% lower than current rates. These assets could attract higher rentals on renewals over the next few years.

“Embassy has a pipeline of around 50mn sq ft of commercial development that can be offered to the REIT over the next few years. In addition to this, it will also look at inorganic growth opportunities,” said the person. 

The REIT, registered in 2017 as Embassy Office Parks, is sponsored by Blackstone and Bengaluru-based Embassy Property Developments. The lead banker is Morgan Stanley followed by JP Morgan, Kotak Mahindra and Bank of America Merrill Lynch.

Blackstone has emerged as the most aggressive institutional investor in India’s real estate sector. The firm owns India’s biggest portfolio of income-producing office assets and has committed $5.3bn across the key property markets of Mumbai, Noida, Pune, Bengaluru, Chennai and Hyderabad.

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