MUMBAI: Tuhin Parikh waited for last decade's real estate party to go bust before investing big dollars to create the largest ownership of office buildings globally. Since then, the 44-year-old senior managing director at Blackstone — the world's biggest private equity firm and the most influential real estate investor — has aggregated a 100-million-sqft portfolio in India, which is almost 12 times the size of the Bandra-Kurla Complex or 16 times bigger than Nariman Point, both business hubs in the country's commercial capital, Mumbai.
Parikh struck acquisitions, joint ventures and made strategic investments to build the India portfolio that dwarfs goliaths like Boston Properties and Vornado Realty in the US. Parikh and Blackstone virtually scripted a gold rush into the country's rent-yielding office spaces, which saw blue-chip investors and sovereign wealth managers like Brookfield Asset Management and Qatar Investment Authority stream in.
Now, as Indian stock markets soar to record highs, Blackstone plans to list one of its joint ventures, Embassy Office Parks, which bankers expect to fetch $4-5 billion valuation.
While this may be a test case for listing real estate investment trusts (REITs) in the country, Blackstone India office space assets will be worth $20 billion when fully developed in the next five years. Details accessed by this newspaper show that Blackstone has 61 million sq ft of leased office space with the remaining in the pipeline to be completed by 2023. "Blackstone is investing in the future of India, and betting on its long-term economy even though IT services and back-office industries are facing headwinds. It speaks about Tuhin's persuasion skills to convince faraway investors to invest big in India real estate," HDFC chairman Deepak Parekh said.
In the leased space alone, Blackstone India has moved past the biggest office landlord in China—CR Land with about 55 million sq ft space and $20 billion of market value. Among the more well-known US office space owners, Boston Properties with 45 million sq ft in Boston, New York and San Francisco has a market value of $31 billion. Japan Real Estate Investment Corporation has about 29 million sq ft assets in Tokyo with $10 billion in market value.
Later this year, Embassy REIT will list 35 million sq ft operational and pre-leased offices, with Rs 1,600-crore annual rentals, to raise as much as $1 billion, or Rs 6,500 crore. This provides both Blackstone and Embassy with liquid shares in a listed trust, offering inflation-hedged returns to investors fleeing gold and residential markets.
Blackstone's office space build-up accelerated construction activity in an otherwise morbid sector in recent years—ongoing projects have Rs 16,000-crore capital expenditure, employing 27,000 construction workers. The investment thesis — stable, long-term rental yields in India's services-led economy—revived the real estate sector's contribution to FDI, which crawled back to 11.6% in FY16. More importantly, it energized office space build-up for large corporations as well as startups powering economic growth.
When Blackstone entered in 2006, Indian real estate was in a tizzy, inebriated by the funding frenzy of the go-go years. Parikh didn't strike a single deal for almost four years, and, inevitably, the party ended sooner. The field was almost empty after the crash with most investors fleeing Indian real estate after sinking money into ill-fated land bank stories.
Parikh leapt into the imagination of Mumbai financial mavens when Blackstone acquired the iconic Express Towers in 2013. But he had been quietly building an office space portfolio in Bengaluru and Pune for a few years by then. Blackstone initially chose cities which housed R&D hubs and shared service centers of marquee global corporations. These were clients ushering in modern workspaces and forked out commensurate rents.
Parikh worked on identifying strong local partners, even though outright acquisitions were also on the plate. "He worked with a slender team in choosing good partners like Jitu Virwani of Embassy and K Raheja, besides identifying the right premises with marquee clients. The assets are well spread out, reducing the concentration risks as well," Parekh of HDFC, who is unrelated to Parikh of Blackstone, added. The New York- headquartered investor has 27 projects on the ground across six cities in India.
Blackstone's activity had caught the attention of several global investors, including Canadian Pension Plan and reignited ambitions of GIC of Singapore, among others. The large university endowments and family offices that invest in private equity firms prodded them to look at the Indian commercial real estate market. But this investor fancy is posing problems at a time when the job-generating sectors — IT services, pharma and telecom — are at a crossroads. The unabated build-up leading to a falling capitalization rate (used to estimate investor's potential return based on rentals) and prospect of increased regulatory scrutiny are among the worries Blackstone is keeping track of.
BETTING ON INDIA'S FUTURE
Tuhin Parikh—the lanky, bearded and number crunching Mumbaikar— schooled at Maneckji Cooper, went to Narsee Monjee and is an alumnus of IIM Ahmedabad. He began his corporate career with ITC and worked with The Chatterjee Group before joining Blackstone
"Blackstone is betting on India's long-term economy even though IT services and back-office industries are facing headwinds. It speaks about Tuhin's persuasion skills to convince faraway investors to invest big in India real estate"
