Embassy Group Chairman Jitu Virwani has inked deals with three major American private equity firms.
Private equity giant KKR this week announced an INR 7.25 billion ($102.5 million) investment a premium office complex by Bangalore-based developer Embassy Group in the Indian firm’s tech-driven home town.
KKR is backing an Embassy project to develop one million square feet (92,903 square meters) of office space on the city’s Outer Ring Road, according to the Times of India, giving the developer its second office joint venture with a US private equity major, and its third development tie-up with a North American alternative investment giant, following earlier projects with Blackstone and Warburg Pincus.
Embassy already has a substantial presence in the zone through its 1.9 million square feet Embassy Tech Village park, which was developed through Embassy Office Parks, a joint venture the firm formed with Blackstone in 2012.
KKR Teams Up With Embassy to Serve Big Corporates
“Attracting the support of a global investor of KKR’s caliber further advances Embassy’s efforts to develop high-quality properties for corporate occupiers,” said Jitu Virwani, Chairman of Embassy Group.
The cash will be channeled through real estate-focused non-bank finance company KKR India Asset Finance Limited (“KIAFL”), founded in 2015, which has invested upwards of $1.5 billion in India’s real estate sector, a large part of it in Bangalore, Hyderabad, Mumbai, and Pune.
Embassy Works With US Giants
Embassy Tech Village in Bangalore, developed through a joint venture with Blackstone Group.
The announcement of the tie-up between KKR and Embassy follows less than two months after India’s Securities and Exchange Board approved the initial public offering of Embassy Office Parks REIT, a real estate investment trust that grew out of the developer’s joint venture with Stephen Schwarzman’s Blackstone Group.
The REIT, which is focused on high-end commercial properties, is expected to IPO in Mumbai before the end of February, according to sources cited by Euromoney and would become India’s first listed real estate investment trust.
Virwani’s Bangalore-based firm has developed 53 million square feet (4.9 million square meters) of office, residential, retail, hospitality and industrial warehouse properties, including over 40 million square feet of commercial real estate in six Indian cities, where it serves close to 250 blue-chip corporate tenants.
In addition to its ties with Blackstone, in 2015 Embassy Group set up a $250 million logistics focused JV with Warburg Pincus, Embassy Industrial Parks, and the firm also owns a majority stake in the joint venture that operates WeWork India.
Bangalore’s Booming Office Market.
KKR’s backing for Embassy’s latest Bangalore project comes as rents in the tech capital’s grade A office buildings hit record highs. Sanjay Nayar, CEO of KKR India said the “mid-market residential and commercial projects in Bangalore are among the most interesting themes” for the company.
Average office rents in the city climbed 11.5 percent to an all-time peak of INR 74.6 per square meter per month, according to a December 2018 report by Cushman & Wakefield. Vacancy rates in the city are also near seven-year lows, even after bouncing from 4.6 percent in the fourth quarter of 2017 to 5.8 percent in the last three months of 2018.
With a 64 million square feet inventory, the Outer Ring Road is Bangalore’s largest office district by far — close to three times the size of Peripheral East, its closest competitor. Rents in the district’s grade A offices average $14.8 per square foot per year, the second highest behind the CBD, according to that same report.
The district, which had a 3.5 vacancy rate in the last quarter of 2018, was the only one in Bangalore where net absorption surpassed new supply last year. About 16 million square feet are under construction in the district, adding to the 4.3 million square feet launched last year.
KKR’s Indian Love Affair
In November of last year, KKR India’s real estate operation had approximately INR 40 billion ($564 million) in assets under management, while its buy-out strategy had INR 60 billion, according to Bloomberg.
This is the third major KKR investment in India since December of last year. Just this Monday, the firm completed the $510 million purchase of a 60 percent stake in environmental management provider Ramky Enviro Engineers Limited (REEL), a deal originally announced in August of last year.
In late December, the private equity firm announced, KKR-backed Radiant Life Care Private Limited would acquire a majority stake in Max Healthcare Institute, forming the largest hospital network in North India, and the third largest in the country in terms of revenue.
The firm is reportedly eying a number of additional investments in the South Asian country. According to Mint, a local business website, the New York-headquartered company has expressed interest in investing in PhonePe, a Bangalore based digital payments firm, and is in talks to acquire a majority stake in Aadhar Housing Finance Ltd, which provides housing loans to moderate-income customers. According to Forbes India, the firm is also weighing an investment in Mindtree, a Bangalore-based IT services vendor.
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