Blackstone puts up for sale three land parcels in Bangalore and Chennai

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Private equity (PE) firm Blackstone Group Lp has put up for sale three land parcels in Bengaluru and Chennai, at a combined valuation of about Rs.1,000 crore, as part of a settlement with developer DLF Ltd, said three people familiar with the development.  These are two pieces of land in Bengaluru’s Begur Road and Jigani Industrial Area, and one on Chennai’s Old Mahabalipuram Road.

“Blackstone has been in talks with developers and ideally wants a single developer to buy both the land assets in Bengaluru,” said one of the three people mentioned above. All three declined to be identified.

The three plots are part of a set of land parcels in Chennai, Bengaluru, Kochi and Indore that DLF had intended to develop into residential projects. In 2007, DLF sold 49% stake in these projects to Merrill Lynch & Co. for Rs.1,481 crore. The middle-income housing projects would get fully developed in about seven to eight years, DLF had then said.

At the peak of the credit crisis in 2008, Bank of America Corp. acquired Merrill Lynch.

In 2010, Blackstone, the largest owner of commercial real estate in India with nearly 32 million sq. ft of office space, entered into an agreement to manage Bank of America Merrill Lynch’s Asian real estate assets and to act as the new general partner for the Merrill Lynch Asian Real Estate Opportunity Fund. In the process, it also started managing BofA Merrill Lynch’s assets in India, where it latter owns stakes in several DLF projects.

Though DLF has partially launched and developed some of these land parcels since 2007, some remain undeveloped. With Merrill Lynch’s 2007 fund’s life now coming an end, Blackstone has decided to sell some of them to generate the desired returns, which otherwise seems tough.

“While DLF has developed initial phases of certain land parcels, it isn’t keen to develop all of them. With Merrill’s fund life getting over, the developer has allowed Blackstone to go ahead and monetize those that are still not developed as a settlement,” said the second person cited earlier. Blackstone declined to comment. DLF didn’t respond to queries.

Like many other real estate firms, Gurgaon-based DLF had ventured into newer geographies in a bid to expand its project portfolio.

Those were pre-2008 days and the real estate sector in India was at its peak. However, over the last six to seven years, DLF exited a few property markets, restricted rapid expansion and focused on its core market, the national capital region, though it continued to selectively develop projects outside the region as well.

Blackstone is currently negotiating with developers, one of which is Bengaluru-based Ozone Group, which is in the fray to buy the 47-acre plot in Begur Road for around Rs.500 crore, said the third person cited earlier. Ozone has signed a letter of intent for this plot, he said.

Urban Infrastructure Venture Capital Ltd-backed Ozone Group has raised about Rs.900 crore in the last 15 months—Rs.575 crore from Piramal Fund Management Pvt. Ltd and Rs.150 crore from Aditya Birla Real Estate Fund. Last year, Blackstone invested Rs.175 crore in the residential portion of Ozone’s 42-acre, mixed-use Metrozone project through the bulk-buying of apartments. The developer has also been looking for strategic land parcels and is gearing up for a fresh pipeline of projects.

An Ozone spokesperson declined to comment.

“Land deals are being pursued despite the slowdown in real estate, and developers, particularly those who are backed by private equity funds, are the ones who are actively looking out,” said Ram Chandnani, managing director (transaction services), south India, at real estate consultancy CBRE.

While most developers still prefer the joint development route with landowners instead of buying, there are a few, who are sitting on cash or are funded by PE firms, looking at these transactions.

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