1. Why PE funds like Blackstone, CPPIB & Macquarie are betting big on shopping malls

Why PE funds like Blackstone, CPPIB & Macquarie are betting big on shopping malls

While consumer sentiment might appear subdued, these fund managers are convinced there’s enough purchasing power to keep malls humming.

By: | Updated: May 17, 2016 7:42 AM
While consumer sentiment might appear subdued, these fund managers are convinced there’s enough purchasing power to keep malls humming. (Reuters) While consumer sentiment might appear subdued, these fund managers are convinced there’s enough purchasing power to keep malls humming. (Reuters)

Having made good money in office property investments, a clutch of leading private equity funds is now out shopping for malls. Blackstone, sources say, is mulling two acquisitions — in Bengaluru and Surat — having picked up two malls from Gurgaon-based Alpha G Corporation, in Amritsar and Ahmedabad. The PE giant, which was focused on office space for the last four years, recently snapped up L&T Realty’s Seawoods Mall in Navi Mumbai. Again, after GIC bought into Viviana Mall in Mumbai earlier this year, Xander is believed to be bidding for 2 million sq ft at GMR’s Gurgaon plot. Other funds that are eyeing retail property include CPPIB and Macquarie.

While consumer sentiment might appear subdued, these fund managers are convinced there’s enough purchasing power to keep malls humming. According to one estimate by JLL India, investments into the retail property segment could hit $80 million (approximately R530 crore), twice last year’s levels. Sunil Rohokale, CEO and MD, at ASK Investment Holdings believes the opportunity is big given there’s little happening in the residential segment and the office piece has become expensive.

Arvind Singhal, chairman and managing director at Technopak, says the interest shown by PE players could help some developers cash out.

Several PE funds like Blackstone, GIC, QIA and Xander have bought into major office assets or even built up an entire portfolio. The large appetite foreign players, who chased a handful of office projects, has driven down capitalisation rates from 12% to 9.5% in the past five years, industry watchers said, adding that some built-up assets now command a cap rate of 8%. Effectively, this has driven up property prices. However, retail space remains relatively affordable since cap rates are in the region of 11-12%. PE investments will probably flow into mature assets first before they move into properties under construction.

The average vacancy at malls across the country is high at about at 20%, according to a JLL India estimate. However, there are around 10-15 where vacancies are below 10% and are deemed well-performing. In cities like Pune and Ahmedabad the presence of too many malls has pushed vacancies up to over 20%.

Moreover, several malls also function inefficiently because shops or floors belong to different owners; some of these malls suffer a vacancy of over 50%. In Mumbai, Atria mall in Worli, Mega Mall in Andheri, Crystal Point in Andheri, Nirmal Lifestyle in Mulund and Center One in Vashi are among those that are more than half empty. Technopak’s Singhal feels there will be no takers for malls that have multiple owners since it will be difficult to deal with them. Industry experts say funds are not likely to be interested in establishments that are smaller than 1 million sq ft. Most deals are expected to take place in the metros but given brands such as Fabindia and Zara are likely to move into second-tier cities, centres such as Surat and Ahmedabad assume importance.

Saying buy-buy

Funds turn to malls to beef up income-generating portfolio

Blackstone, GIC, CPPIB, Macquarie, Xander negotiating deals

Retail PE deals expected at lower cap rates than offices

Retail PE deals could touch more than Rs 500 cr this year, a two-fold increase over last year, said JLL India

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