Macquarie, Abu Dhabi sovereign fund join race for Indian malls

The valuation of malls has gone up because investors are pricing them at 7-8% yields

The Abu Dhabi Investment Authority (Adia), the sovereign wealth fund of Abu Dhabi, and Macquarie, an Australian investment firm, could become the latest global investors joining the race to buy and build malls in the country.

Blackstone, Singapore’s GIC and the Canada Pension Plan Investment Board (CPPIB) have either set up their own mall companies or have entered joint ventures with Indian property developers.

Adia, with estimated assets of $773 billion, is in the final leg of talks with Lake Shore India Advisory, promoted by retail property veteran Ashwin Puri and others, to give a managed account to the latter to invest in malls in India, said sources. Lake Shore is an investment manager.

In a managed account, a fund manager looks after investments of one large investor, as against managing the funds of many investors in a private equity fund.

Red Oak Retail is a sister firm of Lake Shore and is a mall development and management company set up by Puri and others. Red Oak is likely to manage the malls where Lake Shore would invest.

Puri set up the firm after leaving Pioneer Property Zone, a joint venture between Old Mutual of South Africa and ICS Realty, where he was at the helm.

Earlier, Adia had given a $200-million account to Kotak Realty Fund and has a similar agreement with investor-cum-developer Hines India.

“Unlike Blackstone and GIC, which invest in ready malls, Adia is looking at building malls with Puri,” said a source who did not want to be named.

When contacted, an Adia spokesperson said: “We never comment on market rumours about investments.” Puri, too, declined to comment on the matter. Macquarie, which entered into a joint venture with European retail specialist fund manager Pradera, is also looking at investing in Indian malls, sources said.

 

In September 2016, Pradera entered into a joint venture (JV) with Macquarie Retail Real Estate Management, a subsidiary of Macquarie Infrastructure and Real Assets, Hong Kong (MIRA). It will provide asset management services in Asia.

MIRA also has offices in India and is headed by R K Narayan. A Macquarie spokesperson declined to comment, while an e-mail sent to Pradera did not elicit any response.

Rajneesh Mahajan, executive director at K Raheja Corp-owned Inorbit Malls, said global investors were gaining confidence to invest in the country’s malls after a decade.

“These investors have invested in residential and office properties in the past decade and were doubtful about sustainability of malls. But some good malls have demonstrated that they can do well despite competition from online retail,” Mahajan said.

He added the valuation of malls has gone up because investors are pricing them at seven to eight per cent yields against eight to nine per cent yields earlier.

“The one percentage point difference pushes up valuations by 15 to 16 per cent,” he said.

Global investors have been actively buying malls in recent years. While Blackstone has set up its own mall company, Nexus Malls, which has bought four malls, GIC owns stakes in couple of malls, such as R City and Viviana in Mumbai.

Dutch pension fund APG Asset Managemet recently set up a JV with private equity fund manager Xander Group to invest in the retail space.