The real estate arm of Citigroup, Citigroup Property Investors (CPI) is swapping its investments from the entity level to SPV’s in Delhi- based developer BPTP to gain more control, reports Economic Times.
Citigroup Property Investors (CPI) is selling its 5.89% stake in Business Parks and Town Planners (BPTP), which it holds as an entity level investment and looking at investing in BPTP’s various other projects at Special Purpose Vehicle (SPV) level. The report adds that BPTP promoters are expected to buyback CPI’s 5.89%. CPI had bought the stake in BPTP in 2007 for Rs 322.50 crore.
On contacting by VCCircle, BPTP declined to comment on the issue, saying that “we are not working on those lines.”
CPI, reportedly, is looking at gaining more control in BPTP by making an SPV level investment as its entity level investment in BPTP for a 5.89% stake did not give it much control. Sources suggest that CPI is carrying out due diligence of BPTP’s projects in Gurgaon and Faridabad.
CPI has had a better experience working with BPTP at an SPV level. It had earlier, bought a 40% stake in BPTP’s each of the four special economic zones (SEZ) for Rs 640 crore in April last year. BPTP had used this money to pay the first installment, which amounted to Rs 1,300 crore, of the Rs 5,000 crore Noida land deal.
The project however, fell through few days back as the developer was unable make any further payments for the land. The consortium had bagged the Noida land deal in March, 2008 by bidding for the land at the rate of over Rs 1.30 lakh per square meter.
In July 2008, JP Morgan Chase had invested Rs250 crore for a 4% stake in the company.
Real Estate Deal Focus
There are a lot of real estate investors who prefer investing at an SPV level as they are individual projects and cater to more focused investment approach apart from giving the funds more control on the investment. It is also suitable for investors who are looking to test the market and diversify through multiple partners, locations, assets and size of transactions.
A Cushman & Wakefield report on real estate shows that among 79 deals from mid August 2007 to mid August 2008, about 51% of deals happened at the SPV level. Apart form providing a more focused approach to a particular asset class, it also offers benefits of automatic diversification.
Entity level (25%) deals were the least in number terms, also as these are significant ticket size which suits the appetite of very few capital providers.