Blackstone is ready to talk about its Embassy REIT exit

Blackstone’s bet on the maturation of India’s domestic capital market has been further verified with its full exit from Embassy REIT.

PERE understands that the real estate giant’s exit from the country’s first real estate investment trust generated a 3x to 3.5x return for investors. Having launched the REIT with Indian real estate developer Embassy in 2019, Blackstone sold its remaining 23.6 percent stake in the vehicle through a $850 million block trade at the end of December 2023.

Three months after the transaction, the firm’s senior executives speaks for the first time about the significance of the exit in an exclusive interview with PERE.

Tuhin Parikh, senior managing director and head of India real estate at Blackstone, tells PERE that the representation of domestic capital in the Embassy REIT had nearly doubled from 30 percent in 2019 to 59 percent in 2023.

Parikh says the increased participation of domestic capital in the REIT market was a “very good sign” for international investors. Previously, “there was a perception that if you invested in Indian real estate, it was largely supported by international investors. So when the market is volatile, there’s no local capital for you to exit.”

That is no longer the case today. Not only does domestic capital hold the majority of the stakes in the trust, but those investors include three of India’s mutual funds: ICICI Prudential Mutual Fund, SBI Mutual Fund and HDFC Mutual Fund. While SBI MF became a new investor in the trust via the December block sale, ICICI Prudential MF is now the biggest investor in the REIT with an 11 percent stake.

“A lot of local capital now exists and that gives the market liquidity,” says Parikh. “This also allows international investors to grow much more comfortably, as they know there are domestic investors to give you the exit you need. You are not dependent on international investors to come in.”

‘Maturation’ of India’s real estate capital market

Apart from the participation of domestic institutions, the size of the Embassy transaction is another indication of the “maturation” of the real estate capital market in India, according to Alan Miyasaki, head of real estate acquisitions Asia at Blackstone.

“We would do large stock sales in companies in the US or elsewhere,” says Miyasaki. “But having a big sale like this in India – this is just the first.” This was Blackstone’s fourth stake sale in Embassy, following sales in 2020, 2021 and 2022 where the firm sold in total shares worth more than $900 million.

As one of the biggest private equity-led block trades in India last year, Blackstone sold the remaining stake in the trust at a 7.7. percent discount to the pre-sale trading price of 335.75 rupees ($4.04; €3.69) per unit.

Shobhit Agarwal, managing director and chief executive at Mumbai-based investment manager Anarock Capital, believes the discount only reflected the scale of the transaction. “They could have made more money from doing smaller sales in parts. But the fact [is] they could do it on a single day, and the discount was less than 10 percent.” Agarwal adds that the REIT is trading above 370 rupees today. “So people who bought it are in the money, and it is a beautiful thing. It was a fair trade for both sides.”

Agarwal also thought Blackstone’s full exit from Embassy REIT further confirmed that the REIT has been “understood” and “appreciated” by Indian investors. “Indian investors understand the real estate story. [They are] saying office is not going to crash in India, we like this product, we are okay with Blackstone exiting, and we are happy to support the trade. I would say it shows maturity.”

He called domestic capital’s support in Blackstone’s full exit in Embassy REIT a “full cycle.” Having pioneered the country’s REIT market in 2019 with the 47.5 billion-rupee IPO of Embassy REIT, Blackstone has since backed three of the four REITs in India. While the firm sold its entire 9.2 percent stake in Mindspace Business Parks REIT in 2022, it sponsored the listing of India’s first retail REIT, Nexus Select Trust, in May 2023.