If the number of transactions happened during 2013 or the quantum of money committed by private equity firms to real estate is taken as an indicator of deal activity, this year marked the lowest level since 2009. But if the money flow into the sector is taken as a signal of appetite of PE investors, industry players seem to be holding on to their faith on property as an asset class.
The Indian realty sector ended the year attracting PE investment worth around $1.29 billion spread across 45 deals, against 60 transactions with an aggregate value of around $1.66 billion in 2012, as per the preliminary data collated by VCCEdge, the data research platform of VCCircle.
The number of PE deals in realty has slipped below the 50 mark, around a quarter less, to be precise, compared with 2012. The value of investments was also way off the $1.5 billion odd pulled in by the sector from PE firms on average in the previous two years. In the good old days of 2007-08, close to 100 deals were struck two years in succession worth $4-5 billion each.
The final data is a stark contrast from what the industry was hoping for as some big-ticket deals are said to be in final stages but have not fructified yet, taking the total tally down compared with last year.
Khushru Jijina, managing director, Indiareit Fund Advisors, says, “The number of transactions this year has been far lower as nobody has funds left apart from a few of us (investors). We are expecting more action to happen next year as people are right now in a fundraising mode.”
The country’s realty investment landscape has witnessed a paradigm shift with big-ticket buyout funds coming to play and acquiring commercial real estate assets. The year 2013 clearly belonged to the big boys of real estate who acquired leased rental assets across the country, leaving the residential space way behind in the investment league.
Blackstone Real Estate Partners led the pack of investments in the commercial segment with two of the top five deals in the country for the third year running. The only domestic realty fund which managed to climb in the top five with its single largest residential investment in Mumbai is India Infoline Group’s realty fund.
The biggest by far was Blackstone Real Estate Partners joining hands with Embassy Property, HDFC Property Fund and Singapore’s GIC to invest $367.64 million to acquire Vrindavan Tech Village in Bangalore. Vrindavan Tech Village is a 106 acre property and it was promoted by the chairman of Vikas Telecom Ltd. The asset is now being developed by Embassy Property which had tied up with Blackstone last year to acquire leased rental assets.
The second-largest transaction was by Mumbai-based privately held developer Wadhwa Group which raised $173.36 million in debt from Standard Chartered Bank for its commercial project called One BKC located at Bandra Kurla Complex in the city. The developer was earlier looking to raise close to $200 million for the same asset from Morgan Stanley Real Estate Fund which would have pegged the transaction as the largest commercial buyout in the country by a single investor for CY 2013.
Even though investments in commercial assets continue to be in favour this year, rentals and absorptions have seen a southward march.
Anuj Puri, country head and chairman, Jones Lang LaSalle India, says, “Vacancy rate for 2013 signs off at around 18.2 per cent rising from 17.4 per cent as of end-2012. Hyderabad and Delhi-NCR were the biggest contributors in terms of vacancy levels. This was largely due to increased new supply against a fall in absorption.” Even major micro markets in Mumbai including Bandra Kurla Complex have witnessed increase in vacancy levels.
Interestingly sovereign wealth funds also participated in the top league with GIC co-investing in Vrindavan Tech Village and Sealine Investment, believed to be an arm of Qatar Investment Authority, investing around $98 million in Bangalore based RMZ Infotech which mostly builds information technology parks and commercial assets across the city.
The few large commercial property transactions skew the overall data though there was one reasonable sized investment in residential asset by IIFL Real Estate Fund Domestic Series I and other IIFL Group funds when they invested $62 million in Wadhwa Group’s slum rehabilitation project in Chembur in Mumbai.
It was the largest transaction from the stable of IIFL Group for a single investment in a realty company and also the largest transaction from a realty PE firm in a residential asset. The other big transaction was Xander’s investment of $52 million in Delhi-based privately held developer Supertech’s residential project in Gurgaon.
On the flip side there are a few big-ticket transactions which could fructify in 2014, including a deal where Blackstone is said to be one of the bidders for Unitech’s SEZ in Gurgaon.
Some also have more hopes for 2014 as a few realty funds which hit the road in the recent past to raise capital, reached milestones successfully.
This includes Kotak Realty Fund’s offshore offering, which raised $200 million from Abu Dhabi Investment Authority; Indiareit Fund Advisors which raised around Rs 750 crore from the domestic market and is looking to close the fund at Rs 1,000 crore; HDFC Realty Fund which received commitment for its offshore fund of close to $200 million; JLL India’s domestic realty fund which raised Rs 110 crore and marked its first close.
Other funds which raised money through strategic alliance include Shapoorji Pallonji’s realty fund which raised $200 million from Canadian Pension Plan Investment Board by giving 80 per cent stake in the venture.
Amit Goenka, managing director and chief executive of Essel Financial Services, said, “Even though transaction closure time has increased the amount of money raised this year has been very high. People are back with capital and we will see more transactions next year.”
Subhash Chandra-controlled Essel Group, which recently entered the private equity business, also marked the first close of its maiden real estate-dedicated fund called India Asset Growth Fund, early this year at Rs 200 crore on way to garner Rs 1,000 crore.