In what will be the largest private equity deal in India’s real estate space during the past three years, private equity giant Blackstone is investing around $200 million (Rs 875 crore) in a special economic zone (SEZ), promoted by Bangalore-based real estate developer Embassy Property Developments Ltd. The private equity firm is picking up 37 per cent in the development, valuing it at nearly $550 million (Rs 2,400 crore), said a source familiar with the development.

Blackstone's real estate arm has picked up 37 per cent stake in Manyata Promoters Pvt Ltd, which has been jointly promoted by Embassy and the landowner Veeranna Reddy, for a SEZ located in Bangalore’s outer ring road. The transaction is a secondary share purchase from the Embassy group.

The deal is being seen as financing the buyback of HDFC Property Ventures' stake by the Embassy group. Embassy had bought back 22 per cent stake, held by HDFC Property Ventures, for $120 million (Rs 520 crore) in the development earlier this year. HDFC Property Ventures, through its Rs 1000 crore HIREF Domestic Fund, had invested in the SEZ in 2006. Amarchand Mangaldas was the legal advisor to Blackstone on the transaction.

"We cannot comment as we are bound by confidentiality," said an Embassy spokesperson when contacted by VCCircle, adding that Embassy chairman Jitendra Virwani was travelling. A Blackstone spokesperson said "no comments".

Located in north-east Bangalore, Manyata Embassy Business Park includes office buildings, commercial space, residential complexes and recreational areas, as well as a hotel. The SEZ features 13 million sq. ft. of saleable area, spread across 115 acres, with companies such as IBM, Fidelity, Philips, ANZ, Alcatel-Lucent, NVIDIA, Target and Cognizant as tenants.

Jitendra Virwani-led Embassy filed for Rs 2,400 crore ($520 million) IPO with the Securities Exchange Board of India (SEBI) in July last year and appointed investment banks UBS, Citigroup, Nomura and Edelweiss. The company was also looking at a pre-IPO placement of up to Rs 1,175 crore. But as the market situation worsened, the company temporarily shelved its IPO plans.

The last reported deal with over $200 million value took place in August, 2008, when Phoenix Mills raised $296 million from German-Swiss private equity firm MPC Synergy for its various special purpose vehicles (SPV), according to VCCEdge, the financial research platform of VCCircle. Also, in May, 2008, Symphony Capital Partners invested $450 million in DLF Assets.

Blackstone is one of the largest real estate investors in the world and globally, it had $26.5 billion assets under management, as of March 31, 2011. Blackstone Real Estate Partners, which has invested in properties like Waldorf-Astoria hotel, has till date made only one reported investment in Indian real estate space when it infused $18 million in Bangalore-based project and construction management firm Synergy Property Development Services in April, 2008. Last year, Blackstone also agreed to manage $2-billion-plus of Bank of America Merrill Lynch’s Asian real estate assets, which also included investments in Indian projects by developers like BPTP and DLF.

Although the private equity action in Indian real estate sector has been muted, there have been a couple of large deals this year in income-generating developments. In February, Ascendas India Trust entered a deal to acquire a portfolio of five buildings in Phoenix Infocity Pvt Ltd's SEZ for Rs 855 crore. Kotak Realty Fund also soldPeepul Tree Properties (IT park in Goregaon) to Tata Realty and Infrastructure Ltd and Tata Realty Initiatives Fund 1 for Rs 525 crore ($117 million).

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