1. How Blackstone is likely to emerge as biggest retail landlord of India

How Blackstone is likely to emerge as biggest retail landlord of India

Ahmedabad has traditionally been a graveyard for malls. Of the 10 malls that have come up in this western city over the past decade or so, just one has survived.

By: | Mumbai | Published: August 7, 2017 5:20 AM
The mall belongs to Blackstone, the private equity player which seems to be replicating in India a global strategy of taking big bets in the real estate market.

Ahmedabad has traditionally been a graveyard for malls. Of the 10 malls that have come up in this western city over the past decade or so, just one has survived. That’s Ahmedabad One in the Vastrapur area. With an occupancy of 99% and footfall of 40,000 over the weekend, it’s not just surviving, it’s thriving. The mall belongs to Blackstone, the private equity player which seems to be replicating in India a global strategy of taking big bets in the real estate market. Rolling out this strategy is the reclusive Tuhin Parikh, incidentally an alumnus of IIM Ahmedabad, also in Vastrapur. Having acquired close to 5 million sq ft of space in malls in India in just over a year, Blackstone should soon emerge as the country’s biggest retail landlord, toppling Phoenix Mills, which owns around 6 million sq ft across malls.

In fact, with seven malls, most of them in the country’s Tier II cities and one in Seawoods Grand central Mall in Navi Mumbai, it has already raced ahead of rivals Prestige, Rahejas and DLF. And while it would love to get its hands on a chunky mall in a metro, there aren’t any to be had. That’s also because it strictly follows an all or none strategy, no buying bits and pieces. In all, Blackstone is believed to have forked out just under $1 billion for its portfolio. If all goes well, the idea is to flip a purchase in five to six years. In a market where aspirations are rising fast as are disposable incomes, that’s a decent time frame to be looking at before cashing out.

“If it’s a fixed rental, it could escalate by 4-5% annually, but if there’s a revenue share, the annual return could be higher at 7-8%,”explains an industry insider. Right now, the PE player counts Zara, McDonalds , Big Bazaar, Shoppers Stop, Lifestyle Stores and Hypercity among its customers. Cinema theatres, which take on very long leases for 20-25 years, typically prefer paying fixed rents but with other retailers it’s easy to negotiate a fixed-cum revenue share deal.

That’s important because a revenue share agreement leaves room for an upside. Not every retailer always succeeds though and there are often failures that need to be weeded out. Blackstone would like to grow the portfolio 10 million sq ft — which is currently the total space devoted to malls in a big city like Bengaluru. But that could take a lot longer than it has to get hold of the first 5 million.

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