Private Equity Investments in Real Estate Triples: Cushman & Wakefield

As per global real estate consultancy Cushman & Wakefield’s latest report on Private Equity investments in Real Estate (PERE),the total inflows in the sector for H12015 were INR 11,080 croresas against INR 4,000 crores same period last year. PERE investments nearly tripled and also witnessed the highest inflows during the January-June period since 2008, owing to increased exposure from both domestic and foreign funds. The residential sector continued to attractmajority share of total investments during H1 2015 with a 56% share, which remained steady y-o-y basis, followed by the commercial office sector, which had a 41% share, while the remaining were in mixed use developments.

Source: Cushman & Wakefield Research, Real Capital Analytics

The total number of deals increasedby 44% to 39 during H1 2015 as compared to 27 during the same period a year ago.The average deal size nearly doubled (increased 93%) and was noted at INR 2.9 bncompared to INR 1.5 bn in H1 2014.  The top deal in H1 2015 was noted in Chennai, wherein US based New Vernon Capital invested INR 24.2 bnin SP Infocity IT Park. The second largest deal was also in commercial office asset, wherein US based Blackstone - the world’s largest portfolio investment manager, invested INR 10.6 bn to buy 247 Park in IT corridor of Vikhroli in Mumbai.

The increase in PEREinvestments during H1 2015 was on account of continued increase in interest in commercial office and residentialassetswhich nearly tripled(3.2 times and 2.8 times respectively) compared to thesame period a year ago. The largest deal in H1 2015 in commercial office asset was that of New Vernon Capital, while  in residential sector was made by Singapore based Equis Funds Group in Assets Group’s project in Bengaluru for INR 7.2 bn. The total investment volume in commercial office assets during H1 2015 was recorded at INR 4,528 crores, the highest investment in the commercial office sector since 2008. Leased office assets such as IT Parks and IT-SEZs attracted significant interest from foreign investors as they continue to ramp up their portfolio of office assets and accounted for more than 90% share in total investment volume in office assets during H1 2015.This was primarily due to low risk owing to high occupancy levels along with stablerental yields and significant potential for capital values appreciation. Leased office assets also became attractive to foreign investors owing to theanticipated listing of maiden REITs in Indiaon account of the guidelines issued by Securities & Exchange Board of India (SEBI).This trend is expected to continue in the coming quarters as some of the major Indian real estate developers are exploring options to trim their balance sheets and reduce their debt piles by divesting their assets.

During H1 2015, residential assets recorded the highest ever PE investment since 2008 as domestic funds continue to increase their exposure to residential assets. The total investment volume in the residential sector increased significantly by 2.8 times on y-o-y basis and was recorded at INR 6,328 crores.Domestic Private Equity funds led the investment in residential assets and accounted for majority share (69%) in total investment volume in residential assets, while the remaining was taken by foreign funds. PE funds have started making investments in the affordable housing segment and realizing the opportunities presented by the central government, they have started exploring options in Tier -2 cities as well.

Commenting on the report, Sanjay Dutt, Executive Managing Director South Asia, Cushman & Wakefield said, “While PE investments in real estate sector have been rising steadily, funds are taking longer time and taking calculated risk and mainly investing in projects where there is proper clarity on cash flow. The investment trend is likely to continue upwards owing to improved macro-economic factors. Furthermore, an enabling policy environment, healthy demand for office space and a recoveryin residential demand, will all lead to continued inflows of investments in India from PE funds in the coming years.”

Chennairecorded the highest level of transaction volumeduring H1 2015 with total investments of INR 3,778 crores, which surged many fold compared to the investments in H1 2014.Majority of the investments made in Chennaiwere in commercial officeassets followed by Mumbai withthe second highest share withan investment volume of INR 3,266 crores. Bengaluruaccounted for the third highest share withINR 1,954 crores of investments.Equis Funds Group and Piramal Fund emerged as the leading investors in Bengaluru, making investments in excess of USD 100 mn each in residential assets.