Goldman forms $300m realty JV with Nitesh Estates

Wall-street leader Goldman Sachs is expected to invest $300 million (Rs 1,850 crore) in a proposed joint venture company promoted by listed property developer Nitesh Estates. The proposed JV will own and operate commercial real estate assets in India, people directly aware of the matter said.

As per reports, Goldman will hold 74% whereas Nitesh Estates will have 26% in the proposed entity which has plans to acquire rent-yielding office parks, shopping malls and luxury hotels, sources added. The impending deal is a proprietary investment from the Goldman Sachs balance sheet which has assets estimated at over $900 billion.

Meanwhile, with the proposed investment Goldman Sachs joins the list of marquee global investors like Blackstone, Brookfield Asset Management, Qatar Investment Authority and GIC of Singapore which have been buying into India's over 400-million-sqft commercial real estate market over the last few years.

Indian economy, dominated by service sector has opened a stable market for income-generating commercial real estate, giving investors a chance to list these assets through real estate investment trusts (REITs). These trusts are listed entities holding income-generating real estate assets from which earnings are distributed to shareholders.

SEBI recently came out with REIT guidelines last year to help real estate and infrastructure developers list their rent-yielding assets, and providing large and small stock market investors with an inflation-indexed product.

Goldman Sachs with the first-generation entrepreneurial company Nitesh Estates, will create a platform of assets worth almost $1 billion in the next few years. The still unnamed JV, on which a battery of top lawyers are completing due diligence, is expected to employ leverage financing of up to three times the equity commitment to go on a shopping spree.

The recent Union Budget provided some tax clarity on REITs even though certain structuring challenges still remain. Four Indian developers - Embassy Office Parks (Blackstone), K Raheja Corp, RMZ Offices (Qatar Investment Authority) and Prestige Group - are readying to list their assets, which could translate into at least a $20-billion REIT market in the next few years.

With such market potential, India would compete with or even surpass the Mexico's REIT market, often cited as a successful new world experiment, launched three years ago and with a current market value exceeding $18 billion. New York, London and Singapore have hogged the limelight in developed market.

Brookfield Asset Management, with real estate and infra assets worth over $200 billion globally, struck the single largest deal when it acquired the office parks of Unitech for $1 billion - $400 million in equity and $600 million in debt. Private equity giant Blackstone Group, too, struck office park acquisitions worth more than $1 billion in recent years in India.

Blackstone-supported Embassy Office Parks and Brookfield India, with 21 million sqft and 17 million sqft portfolios, are among the top five office landlords in the country. DLF tops the list with around 30 million sqft.

Though foreign investors have mostly invested in office buildings, that too specifically in 125-million-sqft IT SEZs until now, they are turning to the country's hotels and shopping malls which have remained undervalued or, in some cases, distressed assets for a while.