REITs raise funds from investors, investing in assets of commercial importance to real estate market, all inspired and modeled after mutual funds.
Bengaluru |Mumbai: South India has been making headlines in the real-estate business as they seem to have possession of assets that can be listed under the Real Estate Investment Trusts (REIT) with more that 156 million sq. ft, approximately 15 sq kms, with such properties. Cities such as Bengaluru, Chennai, and Hyderabad now owns the largest pie of such assets under the REIT.
REITs raise funds from a large number of investors, modelled after mutual funds and invest them in the commercial real estate assets.
Many property consultancy firms such as the JLL India says that total office assets in Bengaluru, listed under a REIT can peak well over 84%. Chennai hosts 69%office space qualify as REIT-worthy, Pune with 63% and Hyderabad with 67% REIT-worthy office spaces.
Ramesh Nair, Country head, JLL India commented on this saying that the launch of REITs will expand the horizons of the developers making them realize that the office projects are now better positioned in the market fetching them higher dividends in the future. Along with this advantage, there capital value appreciation can also be capitalized whenever they choose to exit.
Non-IT cities the norm is dictated by the strata sold offices. Nowadays the IT cities are tangible in having higher share of assets worth leasing comparatively to their older counterparts. In Mumbai, 44% of office spaces are REIT-worthy while in Delhi-NCR it is 54%.
Knowing this piece of information has created an impact in the real estate investors. Not just the foreign investors, but also their domestic counterparts are now raising funds to invest further in this particular class of asset.
RMZ, a Bengaluru-based developer in the real estate, have discussions with Canadian Pension Plan Investment Board and the share holder Qatar Investment Authority to expand its assets portfolio through acquisitions by raising 1 billion dollars before considering REIT. RMZ aims at creating a strong portfolio of around 30 million sq ft before appealing in the REIT listing; we are currently in the process of raising a second round capital said Thirumal Govindaraj, Managing Director at RMZ.
This would be a major avenue for developers concentrating in the commercial sectors to access liquidity and exits for investments made earlier; Investors’ response to the REIT will determine the future growth of the REIT market, said a CEO if a large commercial developer with several operational IT parks in western India.
An investment of $250-300 million has been made by US private equity firm Blackstone Group, for a 15% stake in K Raheja’s 20 million sq ft office portfolio of income producing nature as a precursor to list its commercial portfolio.
Sovereign Wealth, PE Firms, Global Pension funds managers are bullish on Indian commercial rent-yielding real estate due to its assets class responding with best results globally. Some of the large players with strong portfolios in the field are Blackstone, Brookfield Asset Management and GIC of Singapore.
To tap the REIT opportunity in the country, these funds have partnered with builders from domestic commercial real estate segments.