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Southern cities have more REIT-worthy properties

Modelled after mutual funds, REITs raise funds from a large number of investors and invest in commercial real estate assets.

, ET Bureau|
Updated: Aug 08, 2017, 10.38 AM IST
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Bengaluru, Chennai and Hyderabad have more than 156 m sq ft of such assets.
Bengaluru, Chennai and Hyderabad have more than 156 m sq ft of such assets.
BENGALURU | MUMBAI: Southern cities such as Bengaluru, Chennai and Hyderabad have the largest pie of assets that can be listed under the Real Estate Investment Trusts (REIT) with more than 156 million sq ft, or about 15 sq km, of such properties.

Modelled after mutual funds, REITs raise funds from a large number of investors and invest in commercial real estate assets.

According to property consultancy firm JLL India, 84% of total office assets in Bengaluru can be listed under a REIT. It is followed by Chennai where 69% office spaces are REIT-worthy, Hyderabad with 67% and Pune with 63% REIT-worthy office spaces.

“With REITs set to launch, many developers have realised that office projects are better positioned to give them higher dividends in the future too.Besides this advantage, they can also capitalise on the capital value appreciation whenever they exit,“ said Ramesh Nair, country head, JLL India.

IT cities tend to have a higher share of leasable assets than non-IT cities where strata sold offices was the norm earlier, JLL said. In Delhi-NCR, 54% of office spaces are REIT-worthy, while in Mumbai, it is 44%.

The REIT Way
REITs raise funds from more investors and invest in commercial realty assets
Southern cities have more REIT-worthy properties
PE cos, global pension funds and sovereign wealth managers are bullish on Indian commercial rent-yielding realty due to best returns in the asset class globally

It's not just foreign investors -their domestic counterparts are also raising funds to invest further in this asset class.

Bengaluru-based real estate developer RMZ is in talks with Canadian Pension Plan Investment Board and existing shareholder Qatar Investment Authority to raise about $1billion to expand its asset portfolio through acquisitions before listing as a REIT.

“We are trying to create a strong portfolio of around 30 million sq ft before we can go for REIT listing,“ said Thirumal Govindraj, managing director at RMZ. “We are also in the process of raising second round of capital.“

The CEO of a large commercial developer with several operational IT parks in western India said that investors' response to the first REIT will determine how soon the REIT market broadens. “For sure, this would be a major avenue for commercial developers to access liquidity and exits for in vestments made earlier,“ the person said.

US private equity firm Blackstone Group has invested a $250-300 million for 15% stake in K Raheja's 20-million sq ft incomeproducing office portfolio as a precursor to list its commercial portfolio.

PE firms, global pension funds and sovereign wealth managers are bullish on Indian commercial rent-yielding real estate due to best returns in the asset class globally. Blackstone, GIC of Singapore and Brookfield Asset Management are among the large players with strong portfolios.

These funds have partnered with domestic commercial real estate builders to tap the REIT opportunity in the country.

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