In what will go down as one of the biggest commercial realty deals in 2015, the world's largest alternative investments asset manager Blackstone is closing its long-pending deal to buy Mumbai commercial asset 247 Park. The joint owners of the asset signed an agreement to transfer ownership to Blackstone on May 28, 2015, for an enterprise value of Rs 1,060 ($165.7 million) or inclusive of debt on the books of the asset.
Sources quoted above said sales the agreement was signed by all the three parties – Milestone Capital Advisors, Hindustan Construction Company (HCC) and Blackstone – and the paper work is expected to get completed within a month. HCC separately said it has received a total of Rs 200 crore for its 26 per cent stake in the property.
VCCircle had first reported that Blackstone was the front-runner to acquire the property. Other media reports had suggested that the talks have fallen through.
IL&FS Milestone Fund, a joint venture between Milestone Capital and IL&FS Investment Managers, owns majority stake of 74 per cent in the property while the rest 26 per cent is with HCC. Milestone Capital had invested in the property back in in June 2010 valuing the asset at Rs 775 crore.
247 Park is a 1.8 million sq ft completed and leased out office space in the IT corridor of Vikhroli (West), Mumbai and counts Siemens, Piramal Group, Future Group, KEC, HCC, DHL, APL and Tata Group as its tenants.
A Milestone spokesperson confirmed the deal but declined to comment further while Blackstone spokesperson said, “Blackstone will not like to comment” in response to an email.
This brings closure to a deal which has seen many twists and turns over the years. Sources familiar with the matter indicate that Blackstone was initially in favour of a slightly lower valuation with a conditional clause - wherein it would have paid the amount over a period of time subject to certain milestones. However, that was not acceptable to one of the owners of the property.
It hit another roadblock when HCC and Milestone Capital disagreed over the nature of the deal and valuation of the property. HCC went ahead and announced that it is ready to sell its 26 per cent stake separately and has even found a buyer. The compulsion for HCC was to offload its non-core assets to pare its debt worth over Rs 5,000 crore.
All this led to talks that the deal has fallen through and Blackstone is no longer in the race to clinch the deal. As a result, other marquee investors like Canada Pension Plan Board (CPPIB) and Qatar Investment Authority (QIA), joined the fray for buy the asset. Blackstone continued as the front-runner for the deal even when others were keen, sources said.
Rajgopal Nogja, group chief operating officer, HCC, said, “This completes our first real estate development resulting in positive cash flow of over Rs 500 crore in total for the HCC Group over the lifecycle of this commercial property. This transaction is an integral part of our plans to monetize our non- core assets to further reduce our debts. The funds will be used to pare our debts. Through more such initiatives, we are confident of bringing long term stability to our balance sheet.”
When HCC sold its majority stake in the property five years ago it had received around Rs 300 crore.
For Milestone Capital, the deal comes at a time when its focus is to clock exits and return money to its investors. Led by Rubi Arya, the firm has been unflinching on getting the right valuation for the property and stuck to its stand to seal a non-conditional deal with upfront payment of sales proceeds. It has exited the property at a gross internal rate of return (IRR) of 30 per cent and a multiple of 2.5 times, including rentals earned over the last five years, people involved in the negotiations said.
The property fetches an annual rental income of roughly Rs 100 crore.
In the first seven months of last financial year, Milestone Capital returned Rs 635 crore to LPs while its total exit since its inception is worth Rs 2,000 crore. This deal adds substantially to its exit figures.
As for Blackstone, which has been one of the most active buyers of commercial assets in the country, this takes its Indian assets to over 30 million sq ft. It is expected to pool in its assets and list them under REITs but how that unfolds will be an interesting development to watch out for. Recently, it bought an office space, Oxygen Boulevard, for over Rs 600 crore from North-based developer The 3C Company. Prior to that, it acquired two commercial assets from IDFC Alternatives for Rs 1,100 crore in Noida and Pune.
AZB & Partners advised ILFS Milestone Fund on the transaction.