The Atul Ruia-led Phoenix Group, which is engaged in large retail and mixed-use real estate development in Tier I cities, has decided to put its Phoenix Market City Mall in Kurla, Mumbai on sale. It is said to have initiated discussions with various developers and investors, sources in the know told FE.
Global private equity firms including Blackstone and GIC are in talks with the group as is the Canadian pension fund, sources added. Phoenix Market City houses over 600 brands across 2.1 million square feet of retail space, including premium and high street brands like Zara, Steve Madden and Clark’s.
Canadian Pension Plan Investment Board (CPPIB), had entered into a partnership with Phoenix Mills in 2017 to develop, own and operate retail assets across India, in which CPPIB is likely to invest up to $246 million. Earlier, there were reports of CPPIB investing $110.9 million for a 30% stake in Phoenix Mills’ rapidly expanding India retail platform, Island Star Mall Developers. “They might go with CPPIB, as they have done the basic investment,” said a source.
“Right now getting the right valuation is proving difficult for Phoenix. The market valuations today are at about yields of 8-10% and Phoenix is looking to cut the deal at about 6%,” said an industry expert. “There are discussions but the deal is a little away from getting closed, as the valuations are not as desired. If they get the desired valuation at 6% of the IRR, they will be willing to sell this property,” said the person aware of the discussions.
Blackstone, of late, has been very aggressive in the realty space in India, as it has been globally. Experts say that its realty business is focused on aggregating semi-finished or finished, high quality commercial real estate, then going in for a REIT (as laws and regulations become more tax friendly), and eventually parcel these assets to offshore investors who are now increasingly hungry for rent yielding assets. Its latest big ticket deal was in March when it entered into a definitive agreement with Indiabulls Real Estate to divest 50% stake in its prime commercial properties in the megapolis for Rs 4,750 crore. “Globally, investors are happy with 4-5% dollar returns and therefore there is a large play that exists for local aggregrators like Blackstone,” said an industry expert.
Industry leaders say that international firms are eyeing the organised retail space for healthy IRRs and growth. There is huge growth in the rental segment, retail segment and also in mall sizes that have gone up to a million square feet.
Firms like Blackstone and CPPIB expect it to grow further. Organised retail is hardly 1% currently and for that number to go to 5% or 10% is a big leap, and that is what the investors and developers are looking at.
Experts say that for Phoenix, its Market City Mall in Kurla has been a low yielding asset and the question is if Ruia, who is generally considered the king of malls in India, has not been able to turn it around, who will be able to?
By Manisha Singhal