Global private equity major Warburg Pincus hasn’t had a good run in India’s real estate with four of its bets in the sector not having desired results.
The most recent being the PE firm’s stake sale plans in student housing startup Good Host Spaces. In April 2021, Baskin Lake Investment, an affiliate of Warburg Pincus, acquired HDFC’s 24.48% stake in Goldman Sachs-backed startup for Rs 216.18 crore.
After investing over $6 billion in the various sectors here, Warburg Pincus is selling its stake in Good Host Spaces along with majority owner Goldman Sachs, which had held investments in the company for six years. This is not alone, at least three other investments/ventures of Warburg Pincus in Indian real estate saw early exits or did not take off well.
Earlier, Warburg Pincus also ended a two-year-old joint venture (JV) with Lemon Tree Hotels for co-living spaces/student housing set up in late 2018. “Apparently, Warburg was not happy with the way the JV had progressed ” said the sources.
In 2019, Warburg completely exited its 13-year old investment in Lemon Tree Hotels via trades on stock markets.
An e-mail sent to Warbrug did not elicit any response.
The early exits/closures is unusual in PE as global funds have a typical fund life of 8 to 10 years, segment bankers said.
In May 2019, Warburg Pincus and Mumbai-based property developer Runwal Group formed a joint venture (JV) to create a shopping mall platform. The JV planned to invest a total of $1 billion to build malls to invest and develop shopping malls across tier 1, 2, and 3 cities, which have a sizeable population and growing disposable income.
The JV could buy two land parcels and build malls till date, and did not scale up the venture beyond that due to the pandemic which led to temporary closure of malls and stoppage of revenues, sources said.
“They lost two years to covid which also shaved off two years from the seven years of fund life. Rental income was zero for two years of covid,” sources said.
In May 2021, Warburg Pincus and Embassy Group sold their industrial parks venture — Embassy Industrial Parks — to Blackstone for Rs 5,250 crore. The JV tried to sell it earlier also but could not due to a valuation mismatch. Warburg exited the investment in five-and-a-half years as apparently it was not happy with the how JV scaled up the business. The JV had an equity commitment of $175 million from Warburg, while Embassy was to put in $75 million.
Amid its quick sell offs and exits in real estate the exception is its investments in Piramal Realty and Asia-focused logistics company ESR. In 2015, Warburg invested Rs 1,800 crore in Piramal Realty, part of the Ajay Piramal group, for a minority stake at entity level. It has invested in the company since then.
Warburg-backed ESR is also actively building warehouses in the county and became one of the biggest players in the segment. Warburg’s peers say Indian real estate is not geared to scale up the businesses which are funded by global investors.
“They (Warburg) wrote big cheques but the eco system here not able to scale up the businesses,” said a director at a global fund management arm.
He said Warburg missed the office investment boom which was captured well by the likes of Blackstone and Brookfield.
Blackstone invested over $8 billion in Indian real estate since it has started investing in the country and owns millions of sq ft of office, warehousing and malls in the country. “It seems like they change their view about real estate frequently. Intially they feel optimistic then they turn pessimistic on sub sectors of real estate,” he said.
Comparing to the call taken by another US-based fund Carlyle, which decided to stay away from real estate in 2007-08, he added: “They (Warburg) dabbled in real estate but lacked focus.”
Another MD of a Singapore-based fund said: “Their approach to realty is different from others. They did corporate or entity level investments. Unfortunately, Indian realty is not matured enough for coprorate investments. It is a complicated business for managements to scale up.”
However, a senior executive who has worked with Warburg in the past believes that it had done great deals in the consumer sector and held investments for long.
“I believe they lack expertise in real estate. They did not build strong team for it.”
Warburg’s early bets included Bharti Airtel, HDFC and Nicholas Piramal, and blockbuster exits in its investments.
“Though their exits did not fetch great returns this year, they have made good returns in financial services over the years,” he said.
In March 2021, Warburg exited investments in Gangavaram Port by selling it to Adani Ports. It made returns of 12 times on its investment, according to Venture Intelligence, which tracks PE/VC deals.
In November 2021, it sold its stake in BPO firm Encora to Advent International and made returns of six times, Venture Intelligence said.
Founded in 1966, New York-headquartered Warburg Pincus has raised 21 private equity and two real estate funds, which have invested more than $109 billion in over 1,000 companies in more than 40 countries.