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’s real estate transaction in India.
The platform would develop or acquire office property across six cities — Delhi NCR, Mumbai, Bengaluru, Pune, Hyderabad and Chennai. “In growth economies like India and China, real estate provides a scalable entry into the market for Allianz in terms of investments/asset management exposure,” said Francois Trausch, global CEO of Allianz Real Estate.
Unlike its peers Canada Pension Plan Investment Board, 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 per cent to 8 per cent, going by some of the latest deals sealed by CPPIB, levels that the Allianz-led platform is clearly uncomfortable with. “I would exit at those levels, with healthy double-digit returns, not enter. It simply won’t match a fund’s return expectation,” 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. “If 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 …,” said Agarwal. FE