PE firm Blackstone inks India’s biggest commercial real estate acquisition deal

US private equity firm Blackstone has inked India's biggest commercial real estate acquisition deal, which will give it 50% stake in a Bangalore builder-owned portfolio of three business parks for $200 million (over Rs 1,000 crore).

The deal beats Citigroup's acquisition of a Mumbai office building earlier this year for Rs 985 crore, which was bigger than Maple Tree's Rs 800-crore buyout of 2 million sq ft from Assetz Global Technology Park and Baring PE Partners' Rs 500-crore investment in RMZ Corp for 6 million sq ft space.

A person familiar with the matter told ET that Blackstone, which invests in realty firms, has bought stake in an SPV comprising three commercial properties totalling over 10 million sq ft — Embassy Golf link and Manyata Embassy Business Park in Bangalore and Embassy Tech Zone in Pune.

"Blackstone and Embassy Property Developments signed the transaction earlier this month. The deal was followed by the October 4 order of the Competition Commission of India, which gave clearance for the transaction," said the person, who did not wish to be named. "It is an equity-level investment, where a holding company was floated with three commercial assets under it. However, the deal finally cascaded down to the SPV level."

A detailed email sent to Embassy did not elicit a response while Blackstone in an email reply said, "We would not like to comment on this story. Our communication protocol does not allow us to speak on market speculation."

Experts said the deal is in line with this year's trend. "Given the uncertainties in political and economic environment, investors are risk-averse and are investing in pre-leased commercial assets. Around 70% of the transaction closed this year are in pre-leased assets," says Rajeev Bairathi, director-investment advisory at DTZ India.

As per the transaction, Blackstone will get compulsorily convertible debentures of Pune Dynasty Projects (PDP), which is currently into the development of the non-SEZ part of Embassy TechZone in Pune.

Once converted, Blackstone will hold 50% stake in the SPV. Additionally, Embassy, which owns 51% stake in PDP, will acquire 49% from Alta Vista, a Mauritius-based financial institution, making it a subsidiary of Embassy Property Developments (EPD).

"Post this acquisition, EPD will transfer its shareholding of 35.77%, 51.01% and 48.75% in the three SPVs in Pune and Bangalore that are developing business parks along with some other assets in the form of advance paid for the purchase of land and for acquiring joint development rights to PDP.

Herein after, all the three SPVs will become the investee company," said a CCI order. Embassy Golf link is a 5-million-sqft, or 65-acre, business park while Manyata Embassy Business Park is a 100-acre integrated mixed-use development business park, which has a developable area of 18.29 million sq ft.

Embassy TechZone in Pune is spread over 70 acre with 52 acre designated for a special economic zone. Some of Embassy's big tenants at its commercial properties in Bangalore and Pune include IBM, Capgemini, Mercedes Benz, Atos Origin and Accenture. "Blackstone and Embassy will jointly control and manage the entity in which the fund has invested. The deal has very complicated structure with multiple cross-holdings. Embassy will be responsible for completion of the project," the person said.

Bangalore property market surpasses Mumbai, Delhi and Chennai with 140 per cent growth

Bangalore has outpaced bigger property markets such as Mumbai, Delhi and Chennai with 140% growth in the quarter to June over the year-ago period, even as sales in most other cities stagnated or even plummeted.

In the first quarter of the current fiscal, 15.58 million sq ft of residential space was sold in the city, giving it a total market share of 13.9%, property research firm PropEquity said. In comparison, property sales in Mumbai Metropolitan Region and National Capital region fell by 60% and 57%, at 15.98 mn sq ft and 28.86 mn sq ft, respectively. The trend continued into the second quarter.

"Bangalore is witnessing higher offtake compared to other bigger realty markets in the country despite challenging times," said Pirojsha Godrej, managing director and chief executive officer of Godrej PropertiesBSE 0.74 %, which is in the process of launching projects totalling 4 million sq ft over the next few months.

Experts say Bangalore's real estate market is growing due to a combination of factors such as a higher percentage of end users among buyers than in the other cities and a relatively moderate price escalation.

In 2011-12, the southern cities, including Bangalore, contributed nearly 40% to the country's home loan disbursals of Rs 1.95 lakh crore. Since April, LIC Housing FinanceBSE 0.02 % garnered around 14.5% of the total home loan business from the Bangalore region, compared with 12% in the corresponding period last year.

"Bangalore property market is leading both in terms of loan disbursement and sanction," said VK Sharma, CEO of LIC Housing Finance.

Delhi-NCR and Mumbai witnessed a sharp drop of over 40% in property sales in 2012 compared with the previous year, mainly due to multiple increases in home loan rates and inflated property prices. The southern cities, including Bangalore, did not see such a sharp downturn partly due to the turnaround in the IT sector. 

Sentiment was bearish due to worries about macroeconomic growth trickling down to job security and increments. But policy level changes will result in improvement in sentiments and the pent-up demand is likely to be converted hereon," said Niranjan Hiranandani, managing director of Hiranandani Group.

According to the Confederation of Real Estate Association of India (CREDAI), new launches in the bigger markets of Mumbai and Delhi have fallen by 50% and 57%, respectively. "Lack of project approvals has restricted new property supply. Additionally, contribution requirement from home loan seekers has gone up to 40-45% as loans are now being disbursed excluding stamp duty, registration and other taxes , thus impacting sales," said Lalit Kumar Jain, president, CREDAI.

"NCR has seen a drop in home sales because work in Noida extension was stalled for many months. The Noida region was also impacted because of elections in Uttar Pradesh," said Sameer Jasuja, chief executive officer at PropEquity.

Britannia closes in on deal to sell its Bangalore head office land

Britannia Industries, the publicly-held biscuits and dairy major, may be closing in on a deal to sell its six-acre prime real estate land in Bangalore for about Rs 550 crore by the year-end. The land, which houses Britannia’s corporate head-office and residential quarters, has been on the block since December 2011, after Britannia confirmed that it is exploring options to monetise this asset.

Sources say that the asking price of this property has appreciated by a over 20 per cent to Rs 550 crore during the past year, which is why the deal could not be closed before.

According to sources, many property developers and few other corporate houses have looked at how this prime land can be leveraged.

“Piramal Group, Bharti-Walmart are among the few prominent players who have explored this land parcel,” two real estate consultants in the know told Business Standard. While Britannia maintained that they stand by their earlier statement about considering options to leverage this land asset, the company has denied any negotiations with Bharti-Walmart.

Many developers are eyeing the land, which is on the Old Airport Road connecting the central business district to the technology hub of Whitefield, for commercial and retail development. There are not many integrated retail plays in that part of the town.

Bombay Realty, the realty arm of the Wadia Group, which owns Britannia Industries, is also understood to be exploring ways on how they can work on this parcel. This is the second time that Britannia is trying to unlock this land after its attempt in 2008 fell through.

Real estate consultants indicate that about 1 million sq. ft can be developed on this property where the rental ranges between Rs 60 and 80 per sq. ft.

Over the past two years, Britannia has been battling inflation in its key ingredients and has been effectively creaming away costs. The company’s consolidated debt stands at a little over Rs 600 crore. For the first quarter of FY13, Britannia posted an 18.4 per cent increase in net profit to Rs 46.5 crore on a revenue of Rs 1,348 crore, which grew by 12 per cent.

Britannia Industries’ stock gained 1 per cent to close at Rs 477.70 per share on the National Stock Exchange on Thursday.

TE Connectivity to employ 3,000 in B’lore

Connectivity solutions provider TE Connectivity on Thursday said it will provide direct and indirect employment to 2,000-3,000 people in their upcoming manufacturing facility in Bangalore.

The company will invest close to Rs 250 crore to build a 2,80,000 sq ft manufacturing facility at the Aerospace Park, Yelahanka and would be operational by 2014. The facility would create jobs in the areas of assembly, packaging, molding, stapling, tooling machine components, copper wire, optical fibre and cable processes.

“The new facility in Bangalore will become the design, manufacturing centre for TE in India, serving global and Indian customers,” TE Connectivity India President V Raja said. At present, the company has more than 4,500 employees in its eight facilities in India, five in Bangalore, two in Pune and one in Kochi.

It clocked Rs 1,400 crore sales last fiscal ended September 2011 and, Raja said that the company targets $1 billion in sales in the next five years. TE’s manufacturing plants in Shirwal and Wagholi in Pune will be expanded over the next three years with the key focus of expanding India operations by increased local product development.

Technicolor And Rockstar Games Establish Dedicated Games Unit

Technicolor has established a new high-end game art and animation team dedicated to working with Rockstar Games.

The Rockstar Games dedicated unit leverages a segment of Technicolor’s highly experienced team of game artists, animators and state-of-the-art technology infrastructure at its Bangalore, India-based digital production studio. Technicolor India has already worked on several major Rockstar titles including Red Dead Redemption, L.A. Noire and Max Payne 3.

"This partnership reinforces Technicolor’s strong commitment and strategy to growing its art and animation business for the video game industry and we are proud to work with cutting edge industry leaders like Rockstar Games," said Tim Sarnoff, President of Technicolor Digital Productions.

"Technicolor were a fantastic resource for us during the development of Max Payne 3," said Jeronimo Barrera, VP of Development at Rockstar Games. "We’re looking forward to building the partnership on future projects."

Technicolor Digital Productions produces high-quality CG animation for television, direct-to-video, commercials, video games and location-based entertainment through its industry leading production facility in Bangalore, India. Major clients include DreamWorks Animation, Electronic Arts, Mattel, Nickelodeon, Rockstar Games, Sony Computer Entertainment America, and Square Enix.

Top-notch talent pool lures IT, BPO firms to Karnataka

The trend points to manpower availability for skills that are more than plain vanilla outsourcing work that companies indulged in earlier.

Despite a slowdown, Karnataka continues to draw IT and BPO companies due to the large talent pool and specialised skill sets.

In the last two months, four IT and BPO companies have opened development centres in Karnataka.

Nasdaq-listed Pegasystems opened a new development centre totalling 55,000 square feet in workspace. The Bangalore centre will support its global operations and will deliver R&D, engineering services, industry solutions framework and customer support to its global Fortune 500 clients, similar to other software majors.

In July, Xchanging, a London Stock Exchange (LSE)-listed IT and BPO company opened a new centre in Shimoga Special Economic Zone and aims to hire 3,000 people by 2013.

Similarly, Serco, a BPO company this week opened a new facility at Shimoga and plans to have a total headcount of 450 people by November. The facility will offer BPO services to a leading privately held telecom company.

‘ATTRACTIVE PROPOSITION’

According to analysts, despite higher costs due to inflation, availability of talent still makes it an attractive proposition.

“We did not open operations only due to cost but to help us drive the next wave of growth based on our value proposition,” said Alan Trefler, founder and CEO, Pegasystems.

“No other location in the world offers the large pool of quality talent found in cities such as Bangalore. They offer a bundle of distinct and mutually reinforcing benefits which companies can leverage for competitive advantage,” said Peter Schumacher, CEO, Value Leadership Group.

A further proof of this can be seen from the fact that this month, Ellucian, a company that provides technology for higher education opened a new development centre in the heart of Bangalore.

All this points to manpower availability for skills that are more than plain vanilla outsourcing work that companies indulged in earlier.

“Companies are focussing on areas such as predictive analytics for the US financial sector, regulatory compliance related work etc. as compared to call centre kind of jobs,” said Sanjoy Sen, senior director, Deloitte.

PREMIUM ON TALENT

Sidhant Rastogi, director, Zinnov, said: “In most cases, companies setting up their centres were unable to find the right talent in the right number in their native geography, or could not source talent locally in the near future.”

A recent study by Zinnov found that India will produce 250,000 engineers from only tier 1 engineering colleges over the next five years.

The new-age gold rush

Despite a global economic slowdown and increase in employee related costs, India continues to draw IT and BPO companies due to a large pool of available talent pool armed with specialised skill sets. In the last four months, more than half a dozen IT, BPO and start-up companies have opened development centres in Karnataka.

Chinese telecom equipment maker Huawei plans to open a product development centre in Bangalore built over 1 million square feet that can seat 4,000 people. eBay has opened a global development centre in Bangalore and plans to hire 1,000 people by 2015. The company plans to recruit senior technologists with product development experience to create new technologies for its ecommerce business. Competitor Walmart also opened a centre to undertake Walmart’s e-commerce work in India. Others like HP have opened a 2,00,000 square feet development and support centre in Bangalore.

Similarly, Nasdaq-listed Pegasystems has opened a new development centre totalling 55,000 square feet in workspace. The Bangalore centre will support its global operations and will deliver R&D, engineering services, industry solutions framework and customer support to its global Fortune 500 clients, similar to other software majors.

In July, Xchanging, a London Stock Exchange (LSE) listed IT and BPO company opened a new centre in Shimoga Special Economic Zone and aims to hire 3,000 people by 2013

So, at a time when the Indian IT majors are facing an uncertain global economic climate and increasing anti-outsourcing sentiment, why are companies opening up development centres in India? According to companies and analysts India despite its higher costs, availability of talent makes it an attractive proposition.

Alan Trefler, Founder and CEO, Pegasystems is of the opinion that talent available for data analysis or database concepts in addition to taken for granted skill sets like Java or SQL programming is higher in India.

“No other location in the world offers the large pool of quality talent that can be found in cities like Bangalore that offer a bundle of distinct and mutually reinforcing benefits which companies can leverage for competitive advantage,” said Peter Schumacher, CEO, Value Leadership Group.

A further proof of this can be seen from the fact that in August, Ellucian, a company that provides technology for higher education opened a new development centre in the heart of Bangalore. All this points to manpower availability for skills those are more than plain vanilla outsourcing work that companies indulged in earlier. “Companies are focusing on areas like predictive analytics for the US financial sector, regulatory compliance related work etc. as compared to call centre kind of jobs,” said Sanjoy Sen, Senior Director, Deloitte.

A lot also has to do with the specific talent that is needed in a particular geography. Companies in the developed markets (including Japan) have been struggling with this. Sidhant Rastogi, Director, Zinnov said, “In most cases companies setting up their centres were unable to find the right talent in the right number in their native geography, or could not source talent locally in the near future.” Whether it’s in areas like SAP consulting, networking or cyber security, India has options with 5.5 lakh engineering students graduating every year.

Startup story

Technology product startups based in the Silicon Valley and other places are following bigger companies to Bangalore. Snap MyLife Inc. headquartered in Princeton, New Jersey that provides cloud-based applications, opened its India development centre in February.

Companies from other countries are similarly setting up development centres in Bangalore. New Zealand-based Pingar, with offices in Hong Kong, India, the United Kingdom and the US entered India in February in partnership with CMC to develop and implement software products in India and abroad.

Bangalore is attractive for these companies due to the wide choice of talent pool available across different areas for technology companies. A couple of years back, top IT companies like Infosys and others started to move into Tier 2 cities like Trivandrum, but for product start-ups, Bangalore is a big draw.

“Despite high commercial real estate, we see the good quality of technical engineers for developing products like ours in Bangalore,” said Jiren Parikh, President and CEO of Snap MyLife. According to analysts and industry watchers, what has changed now is the increased maturity and the perception of building products that create higher value. Others share a similar point of view. “People migrate to different companies since they don’t get to build products and Bangalore has a wide talent pool to choose from. Also, opportunities in areas like cloud and mobility is making employees consider product companies,” said Vinodh Kumar, Global Director of Engineering, and Head of BloomReach India. The company is three years old and was started by ex-Google employees.

Snap MyLife currently employs 35 product engineers and according to company executives and will triple its employees in the next few months.

Pingar India is planning to increase its current staff in Bangalore of 13 to 35 over the next few months. “These positions will be focused largely on new business development and technical engineering support,” said Peter Wren-Hilton, CEO, Pingar. BloomReach did not give out its India hiring plans but said that has about 80 employees in the US and the company plans to hire aggressively in India. Karnataka has around 200 engineering colleges, according to state data.

Tier II play

To cut costs and contain attrition, MNC are increasingly moving into Tier 2 cities, says a recent Zinnov study. It went on to add that while 96 per cent of MNC R&D companies are located in cities like Bangalore, increasingly they are moving to Tier 2 cities like Ahmedabad, Jaipur, Chandigarh, Coimbatore, Vadodara, Nagpur, Pune and Trivandrum. Further, the study highlighted that there are around 2 lakh employees who work in R&D centres for multi-national companies.

This R&D talent pool is growing at the rate of 9 per cent every year and is expected to reach 250,000 by 2015. Chandramouli C S, Senior Director-Globalization Advisory, Zinnov, said, “MNCs started expanding to Tier-2 cities due to advantages like higher catchment area, lower attrition, cost arbitrage, etc.” Typically, Tier 2 cities were a preferred destination for IT and BPO companies who were grappling with commercial real estate and attrition costs. This trend is being seen now with multinationals like Dell, Nokia, Amazon and others who are looking at tier 2 cities that would be in addition to their existing centres in major cities.

Cost of living in Tier 2 cities in India is 10-25 per cent lower compared to Tier-1 cities and provide cost advantage of 15-40 per cent in commercial real estate costs. “Salary costs and other expenses go up in a tier 1 city over a period of time,” said Manohar Joshi, Director –Systems, IonIdea Inc. IonIdea set up a development centre in Hubli a few years ago.

Also, fresh talent pool in Tier 2 cities is estimated to form 35 per cent of the Indian R&D workforce going ahead. A majority of the work being undertaken involves testing, customer support and bug fixing. These typically tend to be lower level work in terms of profile but which is critical to a company’s operations, analysts say.

While India continues to be a draw, competition from countries like China in terms of engineering skills is catching up. Add to that, 25 per cent of graduates are unemployable and as a result organisations spend about a billion dollars every year in training them. The sooner Indian educational institutions address these issues, the better it would be for the sector. Else, Indian companies will be forced to look to their neighbour across the wall for software talent too.