Allianz partners Pallonji for its first India deal German insurer Allianz is close to striking a deal with construction player Shapoorji Pallonji for approximately $400 million (R2,670 crore), three people familiar with the development confirmed to FE, reports Priyanka Ghosh in Mumbai. Allianz is looking to invest as much as $5 billion in India’s real estate space and a deal with Shapoorji Pallonji would mark its first investment here.
The funds are likely to be routed via Shapoorji Pallonji Investment Advisors, the private equity (PE) arm of the construction group, in what is a platform investment and invested in Grade A, income-generating assets. An email sent to Allianz remained unanswered till the time of going to press. Shapoorji Pallonji declined to comment on the story.
A host of global funds like Canada Pension Plan Investment Board (CPPIB), Blackstone, Qatar Investment Authority (QIA), GIC, Abu Dhabi Investment Authority (ADIA) and Dutch pension fund APG have been building up portfolios of commercial properties for about five years now, either through individual transactions or by partnering with domestic funds and companies.
About three years ago, CPPIB had entered into a similar alliance with Shapoorji Pallonji for $200 million. According to the company’s website, the joint venture has concluded one transaction in Chennai. On the back of robust office absorption rates in the past three years — 34 million sq ft in 2016 — investors have snapped up Grade A buildings or teamed up with developers who own and operate marquee office buildings. For instance, Blackstone tied up with Bengaluru-based Embassy Developers, QIA has a partnership with RMZ, APG with Godrej Properties and Goldman Sachs with Nitesh Estates.
More recently, Blackstone also picked up a stake in K Raheja Corporation, which owns 20 million sq ft of commercial space, while GIC is said to be the front runner to partner DLF for its large office portfolio. Blackstone, which made a series of acquisitions, is now commercial real estate’s biggest baron, with a portfolio estimated at close to 40 million sq ft. Its first REIT issue — together with Embassy — is expected later this year.
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Not surprisingly, yields have been falling in the past three years. Rajeev Bairathi, ED, Knight Frank, points out that while Blackstone was able to close out deals at 11% capitalisation rates, today properties that interest big investors command capitalisation rates of 8%. “Once the first REIT listing comes through, cap rates might tighten further owing to more liquidity in the system,” he said. However, Vikas Chimakurthy, director, Kotak Realty, believes that while cap rates for built-up projects may have fallen, there are opportunities in acquiring half-built properties in need of last-mile funding.
Anshul Jain, MD, Cushman and Wakefield (India), said consolidation and expansion will help maintain the momentum in the commercial office market, with Bengaluru expected to outperform other markets.