Goldman Sachs, Piramal in talks for Rs 800-cr realty deal

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Mumbai | Updated: March 05, 2015 10:32 AM

Experts say this marks return of investments in realty by foreign funds

Goldman Sachs, Piramal, Goldman Sachs Piramal realty dealPiramal plans to develop one as a mixed-use project while the other two will be pure-play residential ventures.

The US-based investment bank, Goldman Sachs, through its private equity operations, is in advanced talks with Piramal Realty to pick up a stake in some of the latter’s real estate assets in a deal that could be worth R800 crore, two people familiar with the development said.

The investment will be made in a special purpose vehicle (SPV) that will hold three of the Ajay Piramal-led company’s assets. These include a seven acre-plot in Byculla (central Mumbai), which the company bought from textile major, Mafatlal Industries. The other two land parcels that will be a part of the SPV are located in Kurla (eastern suburban Mumbai) and Thane, according to sources.

Mumbai-based Piramal Realty has plans to develop one of these assets as a mixed-use development project while the other two will be pure-play residential ventures, sources said.

Both Goldman Sachs and Piramal Realty responded to an email query sent by FE and said they did not wish to comment on market speculation.
FE couldn’t immediately ascertain the quantum of stake that Goldman Sachs will pick up in this SPV.

Foreign funds partnering developers to invest in a pool of projects over a typically five- to seven-year period is becoming somewhat of a trend.
The first such investment took place when Dutch pension provider APG invested R770 crore in Mumbai-based company Godrej Properties in 2012. Later, GIC, or the Government of Singapore Investment Corporation, invested R1,500 crore in a Bengaluru-based company Brigade Enterprises.

It has been reported that Goldman Sachs has committed nearly R1,800 crore in a joint venture it has formed with Nitesh Estates, another Bengaluru-based company for a 74% stake.

Such hefty sums of money has not been invested in the Indian real estate market by foreign players since 2008-2009. Industry experts infer that these deals are signs of optimism and confidence coming back to the realty market.

Right after the economic crisis trigger by the collapse of Lehman Brothers in September 2008, private equity transactions in the domestic real estate sector had shrunk, not only in numbers but also in ticket sizes.

“Making a large investment into one company definitely displays a high-risk taking ability,” Sunil Rohokale, chief executive and managing director, ASK Group, said. “Large investments are being made because even though fundamentals are distressed at the moment, global funds are taking positions in companies and projects where they see embedded value that can be profitable later.”

Experts also say that at a time when land and construction costs are escalating, mainly in Maharashtra, on the back of changing policies, companies that have locked-in fund commitments stand to gain.

However, this is not an industry-wide trend and many real estate companies are finding it difficult to source investments. “It is an opportunity, but for select, large developers who have a proven track record,” Diwakar Rana, director, capital markets, Cushman and Wakefield, said. “Tying up with a reputed, global fund can add brand value and access to growth capital against pre-agreed terms.”

Getting real

* The investment will be made in a SPV that will hold three of Piramal’s real estate assets
* The assets are a 7-acre plot in Byculla (central Mumbai) and the other two are in Kurla (eastern suburban Mumbai) & Thane
* Piramal plans to develop one as a mixed-use project while the other two will be pure-play residential ventures
* First such investment took place when Dutch APG invested R770 crore in Mumbai-based Godrej Properties in 2012

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