Canada-based Brookfield Asset Management Inc. and another global investor have expressed intent, through two separate offers, to buy out the office and retail assets of Hiranandani Developers Pvt. Ltd in the Mumbai suburb of Powai at a valuation of about $900 million-$1 billion, said three people familiar with the development.
The office and retail space, totalling about 4.5 million sq. ft, is part of Hiranandani Business Park and Hiranandani Gardens.
Hiranandani Gardens, a 250-acre development, is the firm’s signature project, and considered to be one of the country’s best planned townships.
“The potential buyers submitted an expression of interest to buy the office and retail assets of Hiranandani in Powai recently. Talks on the deal have been on for the last two months. The offers are currently being evaluated by Hiranandani,” said the first person cited above, on condition of anonymity.
Brookfield declined to comment. Mint couldn’t ascertain the identity of the second investment firm.
“We are currently only corporatizing our assets (from partnership firms) to consolidate our entire Powai holdings into a single corporate entity. This will allow us to raise capital in various ways, especially commercial mortgage-backed securities or REIT (real estate investment trust), which are not available to partnerships. Macquarie has been mandated to come on board to evaluate options at hand,” a Hiranandani spokesperson said in an email response.
Hiranandani didn’t comment on the buyout offers it has received.
A Macquarie Group spokesperson declined to comment.
In the past two years, India’s commercial office sector has performed reasonably well in most property markets despite a sharp slowdown on the residential front.
Some of the most active investors in India’s commercial office space include the Government of Singapore Investment Corp. Pte Ltd (GIC), Ascendas Property Fund Trustee Pte Ltd, RMZ Corp., backed by Qatar Investment Authority (QIA), and Blackstone Group Lp.
Brookfield, a late entrant into the Indian real estate investment scene, has more than $200 billion of assets under management globally and is known to not just own but also operate the assets.
In one of the largest commercial real estate transactions, it bought out Unitech Corporate Parks Plc. (UCP), a portfolio of six assets, including special economic zones and information technology (IT) parks, in 2014 for around £205.9 million.
Hiranandani Developers struck a large lease transaction of about 1.5 million sq. ft with Tata Consultancy Services Ltd (TCS) last year, where the realty firm will construct a built-to-suit space for the IT services firm in suburban Thane, near Mumbai.
“With regards to Thane, in light of the TCS commercial transaction, we were approached by a lot of investors. Nomura was appointed to provide us with various scenarios. However, the company is not envisioning any transaction on that front,” the spokesperson said.
In a telephonic conversation with Mint in March, Niranjan Hiranandani, co-founder and managing director, Hiranandani Developers, said the firm has 5 million sq. ft of rent-generating office assets in Mumbai and is exploring various options to create value for these properties.
“We are in no hurry, but there are three opportunities for our office assets. We could look at a REIT, make a sale of our commercial assets or create a value proposition or stake sale at the project level,” Hiranandani said.
“While Hiranandani is exploring different options, the buyout deal would mean upfront cash on the table. If it opts for a REIT, it would mean a long-drawn process,” said a second person of the three cited above, who too didn’t wish to be named.
“The quality of office space in Powai is very good and 99% is leased out. The properties carry a lot of value,” said a third person, also on condition of anonymity.
Apart from UCP, Brookfield has also partnered with real estate firm Peninsula Land Ltd to form Peninsula Brookfield Investment Managers, which launched Peninsula Brookfield India Real Estate Fund. The Rs.1,200 crore fund is currently in the last leg of deploying capital.
“Commercial properties across India look to be an attractive opportunity now. Vacancies are structurally coming down on a year-on-year basis and with the economy looking more positive than what it was two years back, investing in commercial properties is an attractive opportunity. With the path being cleared for REITs to happen, there is a visible exit option which is also being created for funds,” said Sharad Mittal, director and head, real estate investment, at Motilal Oswal Real Estate Fund.
REITs are listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors and listing them as a trust.
The Union budget this year left out REITs from the purview of dividend distribution tax (DDT), removing the last significant tax hurdle.
“Powai is a city on its own. Integrated townships really help people look at the place more holistically. Overall, Hiranandani is a standout development in the last 20 years,” Mittal said.
Source: livemint .com