German financial giant Allianz this week announced that it has partnered with India’s Shapoorji Pallonji Group to establish SPREF II, a Singapore-domiciled, Indian rupee-denominated fund that aims to raise the equivalent of $500 million for real estate investments in India.
The closed-ended fund aims to acquire a mix of develop-to-core, forward purchase, and stabilized or stabilizing office assets across top Indian cities including Mumbai, Bangalore, Hyderabad, Pune, Chennai, and the National Capital Region around Delhi, according to an announcement by Allianz.
The new fund comes as some of the world’s largest institutional investors, including heavyweights such as Blackstone, CPPIB and GIC, work to build a presence in India’s fast growing property sector as investment yields continue to compress in more developed markets.
Allianz Takes First Step into India
The new fund marks Allianz’ first real estate transaction in India and was conducted by Allianz Real Estate on behalf of several Allianz companies. The deal by the $63.5 billion real estate investment and asset manager forms part of Allianz’s strategy to allocate around five percent of its global real estate portfolio to the Asia Pacific region, according to a statement by the company.
“India is strategic to the Allianz Group. In growth economies like China and India, real estate provides a scalable entry into the market for Allianz in terms of investments/asset management exposure,” noted Francois Trausch, Global CEO of Allianz Real Estate.
Under the structure established by Allianz and Shapoorji Pallonji, the German group will own 50 percent of the platform, with the remainder held by like-minded long-term institutional investors.
German Giant Joins India Investment Migration
The deal by Allianz, a global real estate player, is the latest in a series of high-profile investments into Indian real estate by institutional investors this year. Prior to Allianz setting up its fund, Singapore sovereign wealth fund GIC invested $1.4 billion into a commercial real estate joint venture with DLF Cyber City Developers in August, CPPIB put $500 million in a logistics joint venture with Indian property developer Indospace in May, and Blackstone bought a stake in K Raheja Corp’s Mindspace business park portfolio in March.
“We are looking to deploy approximately 60 percent of our Asia-Pacific allocation to growth economies,” Rushabh Desai, Asia-Pacific CEO of Allianz Real Estate, noted. “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.”
Allianz brought Desai on board last month just in time for the fund to be established. after the real estate investment executive had served with Lone Star Funds and GE Capital.
The country’s growing commercial sector is supported by an expected GDP growth rate of seven percent for 2017-2018, according to the World Bank. And according to a recent report on emerging commercial hubs by property consultancy JLL, six Indian cities are in the world’s top 30 in terms of speed of both economic and real estate development, with Bangalore ranked at number one.
“We’re seeing a significant rise in demand for Indian real estate opportunities,” says Stuart Crow, Head of Asia Pacific Capital Markets, JLL. “International investors – particularly pension funds and insurance companies – are looking to expand into new markets and India’s growth story is very compelling. With the country’s growing technology and e-commerce sector, this is creating demand for both office space and logistics facilities, something that investors are keen to be part of.”
Allianz Joins with 117-Year-Old Indian Group
For its foray into India, Allianz has chosen to work with a long-established local developer. “We have partnered with a best-in-class local operator to take advantage of this favorable environment. Shapoorji Pallonji’s developer/operator model is vertically integrated to oversee all aspects of deal sourcing, design & build, construction management, project management, asset management and investment management,” Allianz’ Trausch noted.
Privately-owned Shapoorji Pallonji Group was founded in 1865 and is involved in construction, infrastructure and real estate projects. The group’s Shapoorji Pallonji Investment Advisors team led by Rajesh Agarwal is charged with supporting the new fund.
Khaitan & Co, Ernst & Young, and Macquarie Capital Securities (India) Pvt Ltd acted as advisors to Allianz in establishing the fund, while Shapoorji Pallonji Group was advised by JLL, AZB, and PWC.