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ASIA NEWS: Right time for India

The world’s largest private equity real estate firm finally is playing its hand in India.

The Blackstone Group set up its office in Mumbai in 2007 with the hire of country head Tuhin Parikh, but it took four years before the New York-based firm deployed any capital in the country from its Blackstone Real Estate Partners (BREP) series of global opportunity funds.

Blackstone’s outlook on Indian real estate has shifted with action. Following last months’ $200 million purchase of 50 percent stakes in three office parks in Bangalore and Pune from developer Embassy Property Development – a deal that had been on the negotiating table for quite some time – the firm now manages approximately $480 million of investments in the country.

On behalf of its $13.3 billion BREP VII fund, Blackstone bought into Pune Dynasty Projects, a special purpose vehicle holding the Embassy Golf Link and Manyata Business Parks in Bangalore, as well as the Embassy Tech Zone in Pune. Through its investment, the firm will gain exposure to 30 million square feet of development land (19 million square feet of which already has been developed).

Blackstone’s foray comes during something of a trough for private equity investment in Indian real estate when compared to the influx of foreign capital that entered the country after the government opened its doors in 2005. According to property services firm Jones Lang LaSalle, almost 86 percent of all private equity investments in Indian real estate between 2005 and 2010 – $11.36 billion in deals – occurred between 2006 and 2008. The same report showed that just $2.67 billion in transactions occurred between 2009 and the end of 2011.

“In 2008 and 2009, as a result of the market correction due to the global financial crisis, the project underwriting assumptions made by developers, fund managers, analysts, advisors and other participants suddenly looked unrealistic,” the report noted. “Project timelines, sales assumptions, debt availability and, more visibly, sentiment just seemed wrong.” Consequently, a poor first vintage of private equity real estate funds triggered a retreat by institutional investors.

Relative confidence has since returned and, predictably, a second vintage of funds has hit the marketplace in 2012, buoyed by the country’s swelling development pipeline. JLL reported that investment-grade property under construction has increased from $69.4 billion at the end of 2006 to $160.1 billion at the end of the second quarter of 2011.

Blackstone currently is considered something of a bellwether among institutional investors. Its decision to take the plunge now could be a further signal that, this time around, private equity real estate bets in India will pay off.