Dollar Rich Indian Real Estate

Indian Real Estate: In Search Of High Investment Returns

Over and above the $2.5-billion invested by overseas realty funds in India till date, nearly two dozen US-funds are raising $3.5-billion for investments in Indian realty. Wall Street powerhouses, such as, Blackstone Group ($1-billion) Goldman Sachs ($1-billion), Citigroup Property Investors ($125-million), Morgan Stanley ($70-million) and GE Commercial Finance Real Estate ($63-million) are just some of the names involved in raising money for investing in Indian real estate. Other big names in the game include J.P. Morgan, Warburg Pincus, Merrill Lynch, Lehman Brothers, Warren Buffett’s Berkshire Hathaway, Colony Capital and Starwood Capital.

Considering the earlier disinterest of most US funds to invest in realty in India, their bullish outlook now comes as a great surprise to many. The answer, perhaps, lies in the February 2005 policy changes allowing 100% foreign investments in construction projects with fast-track approvals. That may be, howsoever, potential investment returns of 25% and more in Indian projects, so hard to come by in the US and Western Europe today that are the star attractions.

And, Goldman Sachs is one such determined big player, as a sea change comes in perceptions and viewpoints of the West. For about a year now, Goldman Sachs’s Whitehall Street Real Estate Funds have been exploring the Indian market and checking out potential investment partners. A while back, the American firm had announced its plans for a $1-billion investment in Indian private equity over the next two years, real estate, private wealth management, and other businesses in the country for its institutional clients. A month later, California Public Employees’ Retirement System invested $100-million in a $400-million real estate fund promoted by IL&FS.

Attracting the investors most particularly is India’s urban office space market, which covers 60-million sq. ft., compared with New York City’s 400-million sq. ft. or New Jersey’s 175-million sq. ft.

Bangalore, with 25-million sq. ft. of office and high-tech space, of which 9-million sq. ft. was built last year, poses a glass half-full or half-empty for these overseas investors.

Tishman Speyer was amongst the first US developers to invest in India. And, last year, the New York City-based firm formed a joint development company with ICICI Venture Funds of Mumbai with a war chest of $2.5-billion. Bringing $300-million each in equity, Tishman Speyer and ICICI Venture Funds will invest equally in their projects.

So far, the Tishman Speyer-ICICI Venture Funds combine has signed a memoranda of understanding for two ventures in India. The first for a $200-million project for residential and commercial development in Bangalore’s on 42-acres of the prime Whitefield suburb. And, the second in Karnataka’s Devanahalli, where Tishman Speyer and ICICI Venture Funds will buy a 25-acre plot, the final use of which has not yet been agreed upon.

Similarly, New York-based developer Vornado Realty Trust has teamed up with the Chatterjee Group, a venture capital firm that is located in New York, as well. The Chatterjee Group with more than $1.5-billion in investments, also includes some Indian real estate development projects and business process outsourcing operations. This partnership has seen Vornado investing primarily in the information technology parks booming market in cities like Bangalore, Hyderabad and Navi Mumbai.