Construction major Shapoorji Pallonji Group and German insurer Allianz Group have tied up for a $500-million (Rs 3,250 crore) equity fund to pick up office assets in India. While Allianz will invest $250 million, the remaining amount will be brought in by a clutch of investors and deployed in various Tier I markets over the next three to five years, the Shapoorji Pallonji management said. This is the latest example of a global fund partnering with a domestic real estate company to jointly develop assets and the first instance of Allianz\u2019s real estate transaction in India. The platform would develop or acquire office property across six cities \u2014 Delhi NCR, Mumbai, Bengaluru, Pune, Hyderabad and Chennai. \u201cIn growth economies like India and China, real estate provides a scalable entry into the market for Allianz in terms of investments\/asset management exposure,\u201d said Francois Trausch, global CEO of Allianz Real Estate. On March 3, FE had reported that in its maiden deal, the $140-plus-billion Allianz Group is set to partner with Shapoorji Pallonji. Unlike its peers Canada Pension Plan Investment Board (CPPIB), Blackstone and GIC, Allianz is leaning towards building projects rather than buying leased out assets since the upsides in such projects are far higher. Because institutional funds have rushed in to purchase the available stock of Grade A assets in the last three years or so, yield rates have been consistently declining, which indicates an increase in the value of the underlying asset. Currently, yield rates are in the range of 6% to 8%, going by some of the latest deals sealed by CPPIB, levels that the Allianz-led platform is clearly uncomfortable with. \u201cI would exit at those levels, with healthy double-digit returns, not enter. It simply won\u2019t match a fund\u2019s return expectation,\u201d said Rajesh Agarwal, CEO and managing director of Shapoorji Pallonji Investment Advisors. Greenfield and brownfield projects will work best, Agarwal added. At the moment, some funds like Kotak Realty, Brookfield and IL&FS are negotiating exits on part of their portfolios but these are fully operational Grade A assets, not what Shapoorji-Allianz is looking for. \u201cIf we have to invest in ready assets, we would look for those which are either partially leased or where mature leases are coming to an end so that there is still an upside that we can capture,\u201d said Agarwal. However, divestments made by PSU banks might be on the cards, he added. While it might be more prudent to reap value, land deals are at the moment in short supply. However, Agarwal disagreed, saying current depressed valuations of land are great for select, pedigreed developers and funds to acquire, provided there is no re-zoning risk, which means the use of land has to be clearly defined. So far, funds like Blackstone, CPPIB, Qatar Investment Authority, GIC, Abu Dhabi Investment Authority, Goldman Sachs and Dutch pension fund APG have all partnered with the likes of Embassy, Panchshil Realty, RMZ, DLF, K Raheja Corporation, Nitesh Estates, Phoenix Mills and Godrej Properties; the mission has been to invest in Grade A offices that have a steady, visible rental income, with the idea that real estate investment trusts will provide an ideal exit apparatus. Experts have pointed out that tough competition among funds have made deals expensive and it remains to be seen how profitable some of the exits might be. Much of this activity has been led by strong annual absorption rates \u2014 34 million sq ft in 2016, according to Cushman and Wakefield, although this year, it is expected to slump.