Property market blues: Realty focused PE funds, Blackstone, Phoenix Mills, others, rush towards retail sector

By: | Published: November 2, 2017 5:38 AM

With realty sector in the doldrums owing to an overall slowdown, a clutch of real estate-focused private equity (PE) funds are diversifying their portfolio by investing in the retail sector.

With realty sector in the doldrums owing to an overall slowdown, a clutch of real estate-focused private equity (PE) funds are diversifying their portfolio by investing in the retail sector. (Image: Reuters)

With realty sector in the doldrums owing to an overall slowdown, a clutch of real estate-focused private equity (PE) funds are diversifying their portfolio by investing in the retail sector. Take the case of global PE firm Blackstone, which has been buying commercial office blocks since 2011. Last year, it instituted a subsidiary—Nexus Malls—and has now completed a series of acquisitions. More recently, Canada Pension Plan Investment Board (CPPIB) and the Mumbai-based Phoenix Mills joined hands to form a strategic investment platform for development of greenfield and brownfield assets. Island Star Mall Developers, a Phoenix Mills subsidiary that owns Phoenix Market City Bangalore, will serve as the platform for this alliance. Prior to this, infrastructure and logistics were CPPIB’s main investment planks.

Similar to what has been witnessed in the residential segment, joint ventures and strategic partnerships are gaining momentum in retail too. For instance, Xander group’s Virtuous Retail and APG Asset Management have formed a JV – Virtuous Retail South Asia. The latter recently acquired North Country Mall in Mohali. With this acquisition, VRSA expanded its portfolio that now includes VR Bangalore, VR Surat, North Country Mall and an upcoming mall in Chennai. Experts said funds are confident that a good shopping spot will perform well because the consumption potential is bankable. Besides, Neeraj Sharma, partner at Grant Thornton pointed out that while office rents are more or less fixed, mall rents are also linked to revenues and so there is scope of more earning.

Still, institutional investors have taken time to sink their teeth into performing retail assets. While bulk of their investments were directed to residential and commercial offices since 2013, it wasn’t until last year when malls were counted as core strategy. “Now it has been well established that malls are not going to die down,” Sharma added. According to an estimate by JLL India, the total investment made in the retail sector between 2015 and September 2017 is $1.57 billion (R10,000 crore approximately). Of this amount, 47% or $724 million (R4,700 crore), were committed in the last 9 months.

Some of the major deals inked this year include Blackstone’s 50% stake buy in the Indore-based Treasure Island and Elante Mall in Chandigarh, VRSA’s Mohali purchase, and the partnership between CPPIB and Phoenix. The renewed interest in the sector has resulted in finally arresting the constantly spiraling mall vacancy rates. Going by realty consultant Cushman and Wakefield’s take, the current mall vacancy rate stands at 13%, an improvement over last years 20%. Experts said the upcoming supply is of far better quality than the malls constructed a decade back when the retail industry was at its infancy. “Issues, such as strata selling, poor designing and fixed rentals, which led to poor performance of malls, are lessons,” said Pankaj Renjhen, managing director – Retail at JLL India.

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