Allianz Real Estate has made its debut in the Indian real estate market by forming a club deal with Shapoorji Pallonji Group to invest in office assets across key cities in India.
The push into India is in line with Allianz Real Estate’s, the German insurer Allianz’s $63.5 billion real estate asset and investment manager, strategy of investing around 50 percent of its regional portfolio into developing Asia or what the firm calls growth economies, essentially countries with secular economic growth and favorable demographic trends.
Aside from India, these include the Southeast Asian markets, where Allianz is yet to make a real estate play, and China where the firm has an estimated AUM of $800 million.
The investor will be investing up to $250 million in equity for a 50 percent stake in the platform called SPREF II. The vehicle has been structured as a Singapore-domiciled INR-denominated closed-ended fund. PERE understands that Shapoorji would bring in one or two more institutional investors as partners in the platform, with a target of raising $500 million in total.
Following this deal, Allianz’s total assets under management in Asia-Pacific are estimated to be €1.9 billion in equity by the end of this year, Rushabh Desai, the Asia-Pacific chief executive of Allianz Real Estate, told PERE in an interview.
Desai told PERE that Allianz had made a decision to invest in India about a year ago on the back of improving macroeconomic fundamentals and the ease of doing business. The choice of investment strategy was influenced by the lessons learned by other investors in the country.
“A lot of people had initially invested via a fund manager, which was not the most efficient model. Many investors also went into a blind-pool environment that may or may not have an alignment of interest,” he explained. “We have selected a partner whose core is that of a construction company, but also has a fund management arm. The governance is also in the hands of investors.”
In terms of strategy, SPREF II will be invested in a spectrum of office assets, including develop-to-core, forward purchases and stabilized or stabilizing assets, in Mumbai, Bangalore, Hyderabad, Pune, Chennai and the National Capital Region.
Investing in develop-to-core assets increases the returns but at the same time involve development risk. Stabilized office assets for example would generate a yield of between 8 to 10 percent in the market, according to Desai, while undertaking development would increase the yield to between 14 percent and 16 percent.
“Having a yield is an important aspect to our investments. However in countries like India the pool of stabilized assets is limited,” he explained. “It is difficult to get your hands on stabilized assets on a scalable basis. Globally, we don’t do too much of develop to core, but in markets like India and China we do take development risk to get access to quality assets.”
Allianz’s entry into India follows a string of major institutional investments in the country this year. Singaporean state fund GIC Private set up a $1.4 billion joint venture with DLF to acquire a stake in a portfolio of office and retail assets in August, which was preceded by Canada Pension Plan Investment Board’s $500 million partnership with Indian developer Indospace in May.
Commenting on the growing appeal of India, Stuart Crow, head of Asia Pacific capital markets at JLL, which advised Shapoorji Pallonji on the Allianz transaction said: “International investors – particularly pension funds and insurance companies – are looking to expand into new markets and India’s growth story is very compelling. With the country’s growing technology and e-commerce sector, this is creating demand for both office space and logistics facilities, something that investors are keen to be part of.”