In the last five years, Canadian investment giant Brookfield Asset Management has been making waves in the Indian real estate sector with its high profile acquisitions. Sample this.
In 2016, it struck a $1 billion deal with the Hiranandani Group. In 2019, it entered the domestic hospitality industry by purchasing the assets of Hotel LeelaVenture. And five months back, it hit the headlines again by sealing India’s biggest ever property deal, when it acquired the assets of Bengaluru based RMZ Corp for $2bn.
Circa February 2021, and the Toronto-headquartered firm, which owns and operates a portfolio of infrastructure and real estate assets, including 42 million sq ft office properties in India, is all set to hit the Indian markets with its REIT listing. This will be the first REIT in India which will be entirely sponsored and managed by an institutional investor.
On September 30, 2020, Moneycontrol was the first to report the firm’s filing of offer documents with the market regulator.
Moneycontrol’s Ashwin Mohan caught up with the man who has overseen the establishment and growth of the investment major’s real estate and hospitality business in India by stitching together several marque deals – Ankur Gupta, Managing Partner, Head of India-Real Estate, Brookfield Asset Management.
Gupta, an IIT Mumbai and Columbia Business School alumnus, who has previously been a senior member of Brookfield’s property investments team in New York, spoke about the assets in the REIT IPO, the rise of the fundraising instrument in India and the related regulatory environment and the deal strategy going ahead.
Edited excerpts:
Q. REIT IPOs in India are gradually gaining popularity amongst big global funds. Two of them are backed by your peer Blackstone and now you have joined the club as well with the third REIT offering in the country. What explains the growing acceptance of this instrument, which had initially received a lukewarm response?
India’s office real estate landscape has significantly evolved over the last decade. From a majority of office stock being largely unorganised, in small format non-institutionally owned buildings with few amenities, the landscape has now consolidated with Grade-A developers owning large modern corporate IT parks with a rich amenity mix. The focus of developers on Grade-A commercial developments, backed by increasing demand from multinational tenants, has led to the onset of large-format campus developments, with increased investments by highly reputed institutional investors.This increasing demand and influx of capital have also resulted in greater acceptance for commercial real estate as an asset class for the retail investors as well. Combined with the proactive efforts of the market regulator, it has resulted in REITs becoming a well-recognized concept and investment product.
Subsequent steps of reducing the minimum application size for REIT issues has only helped to increase the retail participation in REITs, and we laud the efforts of the market regulators on this front. Our REIT, which is India’s only 100% institutionally sponsored and managed, will be hitting the market and we hope to further deepen the offering of REITs to Indian institutional and retail investors.
Q. What are the steps that the Indian government and the regulators need to take so that REITs become as frequent as they are in jurisdictions like US and Singapore?
The government and the securities regulator have already taken measures to increase the feasibility of launching and operating REITs. We have seen several regulations and amendments coming in an incremental manner on REITs, for example with reference to capital raises by listed REITs, and for reducing the minimum application amount in a REIT offering. We are positive that the REIT as an idea and investment product is here to stay and thrive in the Indian market, as evinced by the launch of our own REIT.
Q. Give us a sense of the kind of assets which are part of this REIT offering and the rationale behind picking them?
The assets are four large campus-format office parks, which are “business-critical” for their tenants, located in some of India’s key gateway markets - Mumbai, Gurugram, Noida and Kolkata. The Initial Portfolio totals 14.0 msf, comprising 10.3 msf of Completed Area, 0.1 msf of Under Construction Area and 3.7 msf of Future Development Potential. The assets are home to marquee, blue-chip tenants, with 75 percent of gross rentals contracted with multi-national corporations such as Barclays, Bank of America Continuum, Accenture, Tata Consultancy Services and Cognizant.
The above properties are very well-known assets in attractive locations and count amongst the largest campuses in their respective regions. They are also well-established assets with state-of-the-art amenities, several marquee tenants and a WALE of 7.1 years which provides stability to the cash flows of the REIT. We thus thought it appropriate to include these as the initial portfolio of our REIT.
Q. The NBFC crisis and the outbreak of Covid-19 had badly hurt the real estate sector. How is the demand scenario on the ground for commercial and residential assets or projects?
The COVID-19 pandemic resulted in a period of disruption, including restrictions on business activities and the movement of people comprising a significant portion of the population. However, on the other side, it also emphasised the need to have a high-quality, well-managed, well-designed workspace, with good quality infrastructure, clean air systems, where safety and distancing guidelines can be stringently followed.
Our own office parks, for example, have been operational throughout the pandemic. We have put in a slew of measures for following social distancing and COVID-related norms, such as touchless interfaces, periodic sanitization, adequate floor spaces etc. So, while there was an impact on the number of people coming to office in the initial days of the pandemic, we are seeing the numbers come back to normalcy. Moreover, our tenants have been supportive, as evinced by our collection numbers for the entire pandemic period so far, which average in excess of 98 percent. So we are positive on the demand scenario and expect institutionally owned properties to continue to outperform.
We can’t comment on the residential front, since this REIT is a purely commercial real estate vehicle.
Q. Do you believe that WFH or work from home concept will affect occupancy levels permanently or do you think the concept will be dropped post the vaccination drive?
WFH has been around since before the pandemic and has been a part of most conversations since the pandemic. The point to be noted here is that WFH capabilities and acceptance existed before the pandemic as well.
Moreover, work from home comes with several disadvantages. Data security, availability of 24x7 power, internet backup, backup infrastructures such as printers, scanners and other such machinery, access to food courts, gyms, ATMs and other amenities which are a part of our campuses, is not something that can be granted for a WFH situation. So while we believe that WFH rightly took centre-stage as a measure to contain the pandemic, it will not impact occupancy levels permanently. As economic growth ramps up again companies will shift focus towards efficiency, low attrition and productivity, which will drive return to normal operations.
Q. In 2016, in India’s largest commercial property deal, you had struck a $1bn transaction with the Hiranandani group and later you acquired Leela Hotels. Will Brookfield aggressively scout for such big-ticket deals in 2021?
As disclosed in the Offer Document, we have identified external growth opportunities through the ROFO Properties and Identified Assets. Apart from this, the REIT may acquire commercial properties which further its objectives and business. We cannot make any further comments on the specifics of any future activity, in accordance with regulations.
Q. What are your key takeaways from Budget 2021?
We think the government has done a good job in creating a business-friendly environment in India, and it has been ably supported by the securities market regulator in creating a market for products such as REITs. We welcome these moves and are hopeful that this momentum will continue.