Increasing PE Focus on Retail – Funds Diversifying India Investment Portfolios

Ramesh Nair, CEO & Country Head, JLL India

After a few years of reduced focus on retail real estate largely due to the limited supply across India, private equity (PE) players are again focusing on these assets with over USD 724 mn invested in 2017 (through   September) alone. Compared to the total investment of USD 1.57 bn witnessed between 2015 and September   2017, this chunk shows how the PE focus is changing as they aim to diversify their portfolios.

With an aim to create a portfolio of assets as the Indian market expands, some of the leading global PE funds have started investing in retail sector in order to diversify their investment portfolios in the country. This includes all types of investment such as platform and entity-level deals as also acquiring stakes in leading malls across cities.

The most recent example is of Blackstone forming an India subsidiary named Nexus Malls, which includes a retail portfolio as well as stakes in successful malls like Seawoods Grand Central, Ahmedabad One, Mall of Amritsar, Elante Mall, Treasure Island Next, Treasure Island Indore and Westend.

Joint venture (JV) partnerships and strategic investment platforms have also come under focus during the last 15 months. For instance, Xander group’s Virtuous Retail (VR) and APG Asset Management have formed a JV called Virtuous Retail South Asia (VRSA). The latter recently acquired North Country Mall in Mohali. With this acquisition, VRSA expanded its portfolio that now includes VR Bangalore, VR Surat, North Country Mall and an upcoming mall in Chennai.

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Canada Pension Plan Investment Board (CPPIB) and The Phoenix Mills Limited also joined hands to form a strategic investment platform for development of greenfield and brownfield retail-led assets in India. Island Star Mall Developers, a Phoenix Mills subsidiary that owns Phoenix Market City Bangalore, will serve as the platform for this alliance.

Platform deals to form strategic retail partnerships are expected to see more traction in the coming quarters. In these deals, the track record of a developer and their operational processes, is the key selection criteria of investors. The global investing partner brings expertise in managing international retail assets and thereby, international best practices. The local partner or the mall developer contributes in terms of local market understanding and leverages existing, strong on-ground teams.

The developer partner gains as this funding is used to optimize assets and upgrade all functions of the malls’ operations. In certain cases, the developer can also monetize their non-core assets, thus generating cash flows for future developments. These funds can be utilized for acquiring other assets in order to expand the portfolio. With the help of an experienced international investor partner, the developers also have the advantage in terms of securing favourable lease terms and achievement of cost savings through optimizing operational efficiency.

Another positive fallout is that this would bring in more transparency as well as improvement in operating environment of shopping malls in terms of financials and regular churn of the tenant mix. Institutional investors have medium to long term perspective and therefore would evaluate the brands from that viewpoint.

INCREASING FOCUS ON RETAIL REAL ESTATE ASSETS BY INVESTORS

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Year	Project Name	Buyer	Seller
2017	Treasure Island (50% stake) Treasure Island Next, Indore (70% stake)	Blackstone	Manish Kalani and partner
2017	Elante Mall, Chandigarh	Blackstone	Carnival Group
2017	North Country Mall, Mohali	Virtuous Retail South Asia (VRSA)	Sun Apollo-Gumberg
2017	Strategic investment platform between Canada Pension Plan Investment Board (CPPIB) and Island Star Mall Developers Pvt. Ltd (ISMDPL)CPPIB will initially own 30% of stake in Island Star Mall Developers (subsidiary that owns Phoenix Market City Bangalore)
2016	Virtuous Retail South Asia Platform (VRSA): APG Asset Management and Virtuous Retail (VR) formed a Joint Venture to acquire three retail assets – VR Bangalore, VR Surat and upcoming project in Chennai.
2016	Seawoods Grand Central, Mumbai	Blackstone	L&T Realty
2016	Viviana Mall, Mumbai (50% stake)	GIC	Sheth Corp.
2016	Westend Mall, Pune (50% stake)	Blackstone	Suma Shilp
2015	Ahmedabad One  (erstwhile Alpha one Ahmedabad), Ahmedabad	Blackstone	Advertisement Alpha G Corp (C&C Alpha, Morgan Stanley & G Corp Group)
2015	Mall of Amritsar (erstwhile Alpha One Amritsar), Amritsar	Blackstone	Alpha G Corp (C&C Alpha, Morgan Stanley & G Corp Group)
2015	Elante Mall, Chandigarh	Carnival Group	L&T
2015	Koregaon Park Plaza Mall, Pune	Nitesh Estates, Goldman Sachs	Elbit Imaging

No doubt, rising investment in retail assets is a wining proposition for all the stakeholders – consumers, retailers and developers. It would help create international standard retail spaces that the consumers aspire, and retailers look out for.