Shapoorji, Allianz partner for $500 mn realty fund

Shapoorji Pallonji Group has partnered with the real estate arm of German insurer Allianz for a $500 million equity fund, thereby marking latter’s foray into Indian real estate market.

An announcement made by Allianz read that it has partnered with Shapoorji Pallonji Group to establish SPREF II, a Singapore-domiciled, rupee-denominated, closed-ended fund targeting the office market in India. The German institutional investor will hold 50% in the platform, while the balance will be “held by like-minded long-term institutional investors.”

“This marks Allianz’s first real estate transaction in India and was conducted by Allianz Real Estate, the $63.5 billion (€53 billion) real estate investment and asset manager within the Allianz Group, on behalf of several Allianz companies. This deal forms part of Allianz’s strategy to allocate around 5% of its global real estate portfolio to the Asia Pacific region,” read the statement.

This is Shapoorji Pallonji’s second fund. Earlier, it had got into a similar arrangement for developing affordable housing across India with World Bank’s subsidiary International Finance Corporation and Asian Development Bank - a joint venture for $250 million equity fund. At present, the fund has three projects at various stages of development, which should build over 15,000 affordable housing units and the plan is to build 100,000 such houses in the next three years.

Shapoorji Pallonji Group also has a $200 million club deal with Canadian Pension Plan for a 2.7 million square feet operational IT park in Chennai.

Talking to DNA Money on the latest joint venture, Rajesh Agarwal, CEO and MD of Shapoorji Pallonji Investment Advisors said, “Six tier one cities will be the target area for a medium as well as long-term cash flow producing office portfolio by acquiring a blend of develop-to-core, forward purchases, and stabilised or stabilising assets. The strategy will also include greenfield projects. However, micro-markets are yet to be identified.”

With the $500 million equity infusion, the joint venture is said to have a potential to buy out or develop around $1.5 billion worth of commercial projects in the six tier-I cities - Mumbai, Bengaluru, Hyderabad, Pune, Chennai, and National Capital Region.

There will be one project in each of the cities in the range of 2 to 2.5 million sq ft. Overall, the target is to acquire as well as develop a total of 10 million sq ft by investing for the next three years.

Rushabh Desai, Asia-Pacific CEO of Allianz Real Estate said, “We are looking to deploy approximately 60% of our Asia-Pacific allocation to growth economies. The Indian economy has been consistently outperforming. Strong secular growth, stellar demographic trends, and improving transparency are supporting stable real estate occupiers as well as investor demand, in particular, the office sector which is ideal for long-term core investors like Allianz.”

JLL, the real estate research firm that specialises in property as well as investment management facilitated the deal.

Shobhit Agarwal, head - capital markets, JLL India said, “Among international investors, pension funds and insurance companies are keen on participating in the Indian growth story. The e-commerce sector is generating demand for both office space and logistics facilities, and the Indian government has laid out policies and incorporated various modifications in the last two-and-a-half years to improve transparency in real estate along with making it easier for foreign capital to enter the Indian real estate market.” Till date, Mumbai, NCR and Bengaluru have received more than two-thirds of total investments, according to JLL.

The venture will be supported locally by the Shapoorji Pallonji Investment Advisors team led by Agarwal. SPREF is also keeping their options open to have more similar joint ventures for different segments of real estate, after their affordable housing and office spaces portfolio.

...& ANALYSIS

• The equity fund marks Allianz’s foray into Indian real estate market
   
• Germany’s Allianz will hold 50% in the equity fund - SPREF II
   
• The fund will target commercial projects in six tier-I cities