Over the past few years, Private Equity (PE) funds have joined hands to invest in real estate projects to hedge risk in a sluggish market and undertake big-ticket transactions with longer return horizon.
A case in point
Blackstone is the largest office owner, operator and manager in India today. The premise of their real estate platform here is collaboration (with consolidation of prime Grade A assets in the portfolio) – with Embassy in Bengaluru and Panchshil in Pune & Mumbai.
Together, they have built strong teams that can execute the strategy and create value for all shareholders.
• How to market it better?
• How to deliver it better?
• How to improve tenant relationships and bring in efficiencies?
On the Retail side, we see Blackstone acquiring assets and controlling its operations.
The Real Estate team at Hunt Partners also observes a slight uptick in buyouts or controlled transactions in the sector and while it is a small percentage of the overall transactions, we believe the core reason is the willingness of GP’s and LP’s to undertake such deals now more so than before. It is, however, situational and can lead to one of the following:
• Leveraged at the holding company level; with possibility of sale at the asset, portfolio or entity level
• Decision to exit a global business and carve an Indian business unit
• Succession issues
It has also been seen from general PE transactions, that growth-minority-equity can be tedious to exit in India. With buyouts one has control, the ability to monetize and create value and most importantly the lever to manage such companies – Leadership.
A case in point
Brookfield for example, has more than 1,000 employees across its various portfolio companies in India today. The management teams are all professionals with prior experience of working with promoter-driven companies. These set of professionals have been with the promoters from the times the latter used to be both shareholders and management. Brookfield has managed to staff up teams, deliver results and run the businesses well. Bring them in, compensate them well, enable them with further high quality resources and leave the performance of that business for them to run – a rare opportunity that they may not have held earlier.
One of the largest domestic Private Equity firms, Everstone Capital has now repeated the collaborate-consolidate-control theme twice – IndoSpace (Real Estate platform with Realterm Global) and Eversource (Cleantech platform with Lightsource Energy).
Platforms looking to hire CEO’s keep the following in mind while hiring them:
• Domain expertise
• Strong promoter connects
• Operational leader
• Hands on
Asset Management – an evolving skill set
An important skill in high demand today for Private Equity Real Estate platforms is, Asset Management. Hunt Partners has had the unique opportunity of working on this requirement for a large retail real estate platform. The critical ask for this role is ROI maximization while driving operational efficiencies. Some of the key expectations from this person are:
• Responsible for periodically reviewing and assessing the rent yielding retail malls (EBITDA, ROI, IRR & NOI) to ensure their adherence and growth of the Budgeted Strategic and Annual Business Plans
• Planning the long-term capex needs, monitoring its deployment, evaluating, advising on acquisition and restructuring opportunities along with providing strategic support to the top management on market research, financial feasibility, revenue planning and cost optimization of the group’s new projects and investments
• Close coordination with various functions such as legal, tax and finance internally and all clients externally.
Global Buyout Funds such as KKR, TPG and Blackstone, are aggressively looking to ramp up their portfolios in real estate. One also saw some consolidation in the Indian Real Estate Technology sector. The sector has already witnessed 6 acquisitions this year including the $100-million buyout of Commonfloor by classifieds portal Quikr. The other significant deals were PropTiger’s acquisition of Proprates and 3DPhy, MagicSpace by the Indiannetwork.in and Lifepad by Fellahomes.