Here's what helped Xander and Blackstone beat realty slump

While most foreign private equity funds that entered India in 2005 shut shop and returned to their respective countries after being burned by the highly speculative real estate industry, a few like Blackstone and Xander have not only stood their ground but also doubled investor money.

For Xander it was simple economics. Too much money chasing the same good was a warning bell for the Sidharth Yog managed realty fund. Rather than cashing in on the ‘over hyped’ real estate prices in metros, Xander quietly did its research for a year and it was only in 2006 that Yog decided to put money in the then developing Bandra Kurla Complex district.

[caption id=“attachment_625604” align=“alignleft” width=“380”] Even though it makes up about a quarter of its assets, real estate is Blackstone’s most profitable busines[/caption]

“In May 2006, Xander put money in Maker Maxity, a business park in Mumbai’s Bandra-Kurla business district. Xander picked up a 20 percent stake. Six years on, at Rs 400 to Rs 425 per square foot, the office block is rumoured to have the highest rentals in Mumbai. People with direct knowledge say Xander’s investment has more than doubled,” says this Forbes India report.

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Another aspect that worked in its favour was patience. While Xander took some contrarian bets like investing in hotels and retail, the gestation period for which runs into years, the wait has certainly paid off.

And it is this slow and steady approach that worked in favor of Blackstone too, which over time has built up its India portfolio by re investing in fully-leased, income-generating and low-risk assets such as information technology (IT) parks and business parks, which are FDI-compliant.

Last month, it sold its stake in Synergy Property Development Services, a Bangalore-based project management and design services firm, with a five-fold gain. It invested Rs 60 crore in Synergy, which has delivered over 100 million square feet of built-up spaces, five years ago. The exit, however was valued at approximately Rs 800 crore, said this Times of India report.

Unlike underdeveloped commercial properties where most investors burned their fingers due to an oversupply in the space, investments in pre-leased commercial development projects, including IT Parks and special economic zones (SEZs) though churn out returns lower than the conventional residential developments, they at least offer guaranteed returns.

In October 2012, Blackstone also bought stake in an SPV comprising three commercial properties totaling over 10 million sq ft - Embassy Golf link and Manyata Embassy Business Park in Bangalore and Embassy Tech Zone in Pune.

The Group is now planning a new real estate fund in Asia as it has mastered the art of snapping up distressed real estate assets and turning them and hence scoring returns by selling them to parties looking for safer, “core” properties with 5 or 6 percent returns.

Taking cue from their success, the trend has caught up as IndiaReit, the realty fund floated by billionaire Ajay Piramal, is looking to raise a rental yield fund to provide annuity income to its investors. Other PE funds too are now ready to look at low-risk low returns as most of the investments marked three or four years ago have either failed to take off or have not seen completion.