Talks between Singapore’s sovereign wealth fund GIC and global asset manager Blackstone Inc for a property sale broke down over valuation issues as GIC was not prepared to meet the price that Blackstone had on the table. Sources said that both the parties have walked away from the deal as they could not agree on the pricing.

Blackstone had put on the block half of the stake in some commercial real estate assets that it owns jointly with the Panchshil Group and Salarpuria Sattva and its asking price was $1.5-2 billion.

This has left Blackstone with little option but to launch a REIT for its office properties housed under Nucleus Office Parks and the two joint ventures, sources said. The sources indicated that Blackstone has firmed up its plans to launch a REIT in the region of $1 billion. Sources said that Blackstone has decided to go ahead with the REIT as public markets are trading better than private markets.

Blackstone is in the process of identifying investment bankers to the issue.

Blackstone and GIC did not respond to requests for clarification on the matter.

Last year businessline had reported that discussions between the two were under way and a decision would be taken based on the pricing and valuation of assets.

High valuations

Singapore-based GIC is one of the few overseas funds that still invests in the Indian commercial market. However, it has balked at an asking price of $1.5-2 billion for properties on the block, sources with knowledge of the developments said. The deal pricing would have valued the properties at around $4 billion.

Properties that are part of the sale have a leasable area of 26 million square feet. Projects with Panchshil include Eon Free Zone, Tech Park One, a 415-key JW Marriott hotel, and Pavilion Mall. Projects with Salarpuria in Hyderabad that are up for sale are Knowledge City and Knowledge Capital.

The joint ventures have been in effect for 7-10 years and sources said Blackstone is under pressure from its global investors for payback. The usual period for investments that private equity firms like Blackstone follow is 5-7 years, after which they monetise their investments either through a sale or a listing.

REIT plans

Blackstone owns over 20 million square feet of commercial assets in Nucleus Office Parks. Combined with its joint venture assets, it has over 46 million square feet of real estate. This will be part of Blackstone’s REIT portfolio, on which work is progressing at a fast pace.

Till about last year, real estate investment trusts’ performance in the stock markets were lacklustre, after having touched highs in the initial months of their listing. This coincided with the global downturn in the office market, as well as a slowdown in the software sector, one of the largest occupiers of office space in India.

There has been an uptick in the commercial office sector since. The December quarter saw a spurt in office absorption and 2023 ended with gross absorption of close to 60 million square feet, and is forecast to cross 50 msf this year.

Also, REITs have shown an improved performance in the markets. Blackstone-owned Nexus Select Trust has gained 23 per cent from its 52-week low, while Embassy Office Parks REIT, in which Blackstone was a sponsor and exited in December last year, has surged over 40 per cent.

Market circles said that leasing and rentals have increased because of the demand-supply dynamics. Global Capability Centres are continuing their job flow to India, so the commercial real estate story is strong for another 8-10 years horizon. For those foreign investors and strategics wanting to enter India, REITs have been a success model to invest and get returns. Hence REIT in the current market as a tool for maintaining control, commitment and also partly exit is more favorable than private sale.

“These are very encouraging signs for Blackstone to go ahead with another REIT,” the sources said.

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