The deal would follow Blackstone's recent agreement, according to a Reuters report, to buy a technology park in Bangalore, along with Embassy and a domestic property fund, for around $367 million.
Blackstone and Embassy declined to comment.
As of last year, investment in Indian property by private equity funds totalled $1.95 billion, with 57 percent of it in commercial assets. That compares with $9.8 billion in 2007, when most of it was in residential projects, according to Chennai-based data firm Venture Intelligence.
The value of commercial property being built in India has risen to around $42 billion today, still just a third of the value of homes under construction, compared with $34 billion in mid-2010, according to property consultant Jones Lang LaSalle.
Not all of this can be bought by overseas funds as Indian rules allow them to invest only in technology parks and special economic zones. Also, foreign property investors cannot sell for three years.
Rising competition for the limited pool of income-producing assets has pushed rental yields - annual rental income divided by the cost of the asset - down to about 10 percent from 12 to 13 percent, investors say.
Exit opportunities for funds are also few, as India does not yet permit publicly listed real estate investment trusts (REITs), although it is considering allowing such vehicles, which pool income-generating assets. That means investors looking to cash out can form private REITs, list the assets as REITs in places such as London and Singapore, or sell to another investor.
Morgan Stanley, which has made several residential property investments in India, is in talks to invest $186 million in its first office development in the country, in Mumbai's Bandra-Kurla financial district, Reuters reported recently.
For residential projects, where returns can be higher, Morgan Stanley will stick to projects where approvals are largely in place and land has been acquired, said Shirish Godbole, managing director at Morgan Stanley Real Estate Investing (MSREI) India.
Returns on leased assets are between 14 and 16 percent, compared with residential development projects that