3i moves into real estate

Europe's largest quoted private equity firm is set to devote more capital to Asian real estate in the wake of its maiden property deal.

London-based private equity firm 3i invested €1.4 billion ($1.8 billion) of capital last year, but not a penny was deployed on pure commercial or residential property. In fact, the firm has been conspicuously absent from the real estate scene for many years, arguably missing the boom in Europe and beyond.

But the highly regarded group, headed by Philip Yea, has now crossed the threshold with an investment in an offshore fund targeting Indian real estate.

3i, which set up a Mumbai office last year, is providing the cornerstone $40 million investment of a newly launched $160 million vehicle called INDIAREIT, a fund set up by Indian business tycoon Ajay Piramal.

Mark Thornton, managing director and co-head of 3i Asia, said it would invest in development projects, both residential and commercial.

“The investment thesis is about market opportunities,” he says. “By any measure, there is huge pent-up demand in India.”

A shortfall of infrastructure investment in the country means an estimated €100 billion is needed to build at least 20 million new homes, while a further 200 million square feet of commercial space is required to satisfy demand, much of it from foreign businesses.

Anil Ahuja, who was recruited last March to head up 3i's Indian operation, sourced the property deal through links with Piramal.

Piramal has already launched an $80 million (€62 million) domestic Indian real estate fund.

In India, real estate investment has been made easier by the Ministry of Finance's decision last February to relax foreign direct investment (FDI) rules, allowing 100 percent FDI in real estate, subject to conditions. By the end of the year, there is expected to be €4 billion to €5 billion of foreign direct investment in Indian real estate, according to estimates.

Starwood Capital, Lehman Brothers, Morgan Stanley Real Estate, Merrill Lynch, GE Commercial, JP Morgan, AIG Real Estate, Lehman Brothers, Tishman Speyer and Warburg Pincus have all established operations or are hunting for deals.

Next on the list for 3i could be China, according to Thornton.“We haven't reached a conclusion, but it probably won't be too long before we decide to make a real estate investment in the Chinese market,” he says.