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A peek at Blackstone’s game plan for Indian retail real estate platform

21 September, 2016

When Blackstone acquired retail realty-heavy company Alpha G:Corp lock, stock and barrel last year, a lot of executives in the real estate sector wondered how that would fit into the strategy of a company that had so far lapped up only office assets in India. 

But a few, who were familiar with the game plan of the world’s biggest private equity player in real estate, were not surprised.

“It (Blackstone) is doing in the retail segment what it did in the office space years ago. It stays on the periphery to observe the market and then goes for the kill – lapping up one asset after another,” said a senior real estate adviser who has worked with consultancy JLL India and DTZ in his career spanning over two decades. He did not wish to be named for this story. 

“Its strategy has always been to be ahead of the market – it started acquiring office assets when there weren’t too many players in the game and we see a similar story playing out in the retail segment as well,” the executive added.

Blackstone has now set up a platform—Nexus Malls—that would house all its retail properties. “It will operate as a subsidiary of Blackstone under which all the malls–the ones which we have and the ones we will acquire–will be under the platform. It will be positioned and branded as a separate entity dedicated to retail assets,” said a spokesman for Blackstone. 

He added that Vikas Garg, principal, The Blackstone Group, is likely to take the platform ahead while the overall real estate business remains under the leadership of Tuhin Parikh, senior managing director for real estate at Blackstone.

Garg has been associated with the PE firm for over two years and has worked with companies such as Religare Ltd, Deutsche Bank and The Chatterjee Group in his 15-year career spanning. 

The Times of India reported earlier in the day that Blackstone had set up a firm to house retail realty assets.

Another global player that has set up a separate platform for malls in India is The Xander Group. Its retail platform—Virtuous Retail–has properties in Surat, Chennai and Bengaluru under the VR brand.

“Broadly, it will be like Virtuous Retail in terms of branding but the acquisition and development strategy will be very different,” the Blackstone spokesman said.

The development comes months after VCCircle reported that Blackstone Group wanted to do an encore in the retail real estate market after having built the biggest portfolios of commercial office properties in the country. 

Shopping spree

Over the past two years, Blackstone has brought two malls under its portfolio and is in talks with L&T Realty, the real estate arm of business conglomerate Larsen & Toubro Ltd, to lap up a few more. It set the ball rolling in late 2015 when it acquired Gurgaon-based developer Alpha G:Corp and added AlphaOne branded malls in Amritsar and Ahmedabad in its kitty. The deal gave Blackstone about 13 lakh sq ft of retail and entertainment space in one go. 

As reported by VCCircle, the global PE giant has, in principle, agreed to buy the under-construction office-cum-retail asset L&T Seawoods, a 40-acre property in Navi Mumbai, from L&T Realty. It is shelling out Rs 1,200-1400 crore for the transaction. 

Blackstone is also in talks to buy two more under-construction malls of L&T Realty in Hyderabad. While Blackstone usually prefers to acquire constructed and leased-out assets, analysts say it is lapping up under-construction properties—especially in the retail segment—because there is a dearth of good-quality shopping malls in India.

Besides these deals, the firm was also in the race to acquire a mall from Larsen & Toubro in Chandigarh but was edged out by Carnival Group.

Numbers don’t lie

While Blackstone stays away from officially commenting on its strategy and deals, real estate analysts say it is betting on the growing consumption trend in the country. 

“With economic stability, consumer sentiment is at an all-time high, so people are going and shopping more. The demographics of the country are very favourable as around 65% consumers are below 35–upwardly mobile, savvy, well connected–so they are spending more and more on brands. And this is expected to increase only,” said Pankaj Renjhen, managing director for retail services at JLL India.

According to a report by JLL India, economic and political stability, liberalisation of the foreign investment policy by the Narendra Modi government and improvement in consumer sentiment are some factors working in favour of the retail real estate segment. “Quality mall space is coming up with strong pre-commitments, which indicates that retailers also remain bullish about the long-term India consumption story,” it said. 

Capital flow into retail real estate made up around 8% of the total PE investment in the first five months of 2016 and stands next to its previous high of 11% in the overall pie seen in 2012. “As of May 2016, the total PE investment into Indian retail real estate stood at $149 million. The figure has exceeded investment attracted by Indian retail industry in the year 2007 and could very well cross the previous high seen in 2008,” the report said.

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A peek at Blackstone’s game plan for Indian retail real estate platform

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