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Xander, APG buy Shriram’s Chennai IT SEZ for $335 million

LiveMint logoLiveMint 01-05-2017 Madhurima Nandy

Bengaluru: The Xander Group Inc. and Dutch pension fund asset manager APG Asset Management NV have bought an information technology (IT) special economic zone (SEZ) in south Chennai for around $335 million (Rs2,200 crore) from a joint venture of Shriram Properties’ and Infrastructure Pvt. Ltd and private equity fund SUN-AREA Property Partners, according to two people familiar with the transaction.

The IT SEZ is part of ‘The Gateway’ project in Chennai’s Tambaram area. The 60-acre project has about 4.5 million sq. ft of IT office space, of which 1.8 million sq. ft is already developed and operational. After the deal, Shriram will develop the remaining portion of the SEZ and hand it over to Xander.

The Gateway project also has around 2.5 million sq. ft of residential space which is owned by Shriram Properties. The SEZ has close to Rs500 crore of debt on its books.

“The IT SEZ has been up for sale for a few years now. This is the second time Xander has bid for it, after being in the fray to buy it around three years ago,” said one of the two people mentioned above, who asked not to be named.

In 2014, Xander and an investor consortium led by APG said they were setting up a $300 million venture to buy income-generating, institutional-grade commercial assets across India’s main markets. Over time, if buying opportunities continued to emerge, the venture’s size would be increased to $500 million, they added.

A Xander spokesperson didn’t immediately respond to queries on the deal.

M. Murali, the managing director of Shriram Properties, declined comment.

“This transaction enables Shriram Properties to liquidate this asset and also gives it an opportunity to play a bigger game. In the new RERA (Real Estate Regulatory Act) regime, this kind of capital will be a huge incentive for the company to push forward its expansion plans,” said the second person, who also spoke on condition of anonymity.

In November 2016, APG and Virtuous Retail (VR), the retail development arm of Xander Group, formed a joint venture that acquired a portfolio of three shopping mall assets from a Xander-sponsored fund for about Rs2,000 crore.

Xander has been on an aggressive expansion mode for a while now, both in the office and the shopping mall space. In Chennai, it currently owns only a 600,000 sq. ft office building. But its Virtuous Retail arm is scheduled to open a 1 million sq. ft shopping mall in 2017.

India’s residential real estate business may be reeling under the effect of a prolonged slowdown, but that has not deterred marquee global investors from investing in office space.

Singapore’s sovereign wealth fund GIC Pte. Ltd, private equity firm Blackstone Group Lp and Canada’s Brookfield Asset Management Inc. are the top three global investors in India’s realty  sector.

In what is perhaps the most anticipated real estate deal in the country, GIC is set to buy a 40% stake of DLF Ltd’s promoters in a rental unit. The stake sale is expected to raise Rs12,000-13,000 crore for DLF.

Blackstone has signed a deal to pick up a minority stake of around 15% in Mumbai-based K. Raheja Corp.’s office portfolio for $250-300 million.

Such deals in “income generating assets” have been popular “for a while now”, said Shobhit Agarwal, managing director, capital markets, and international director at property consultant JLL India. The easier deals in the space are done, but “there is no dearth of opportunities in the commercial office space,” he added. Still, given the competition, sellers are engaging in multiple conversations, which is why deals are taking longer to close, Agarwal explained.

SUN-AREA, which had invested in the SEZ in 2006, will also exit the project with this transaction.

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