Why M&A king Blackstone is building industrial real estate assets from the ground up

The New York-based global asset manager is world-renowned for its acquisition skills, with much of its success in India’s office and retail real estate space over the years coming mostly through inorganic routes. However, the logistics park in Chakan is an example of Blackstone building from the ground up. Horizon Industrial Parks, Blackstone’s entity handling logistics and warehousing projects, recently handed over another 52-acre park, ‘Chakan II’. More such projects are underway in Bengaluru and Chennai.

Since Blackstone launched its real estate arm in India in 2007, its focus has been entirely on office buildings and shopping malls. Fifteen years later, it has steadily acquired ready assets to become the country’s largest owner of office space and has the second-largest shopping mall portfolio today. These acquisitions have helped India become the third largest investment market after the United States and the United Kingdom.

Logistics is one of Blackstone’s largest asset classes globally, with more than 1.2 billion square feet of logistics and warehousing space worldwide. But this is a relatively new business segment for India’s asset managers, which entered the field just five years ago. In a sense, one of the logistics parks it plans to build in Chakan reflects its confidence in its business development prospects.

Since Blackstone launched its real estate arm in India in 2007, its focus has been entirely on office buildings and shopping malls. Fifteen years later, it has steadily acquired ready assets to become the largest owner of office space in the country.

“As a real estate investor, Blackstone is always on the lookout for quality leasehold assets. Industrial and logistics is its first real estate platform in India and the company has taken the risk of buying land and building,” said managing director and chief executive of consultancy Anarock Capital Executive Officer Shobhit Agarwal said.

Despite disappointing recent gross domestic product (GDP) data, the country’s long-term economic prospects remain bright. The demand for modern warehousing and industrial facilities has been steady due to expansion in manufacturing activities, e-commerce and fast commerce, and other industries. All of this has resulted in strong institutional investor interest in readily available high-quality industrial assets.

As a result, warehousing and logistics parks have become a focus for Blackstone as it seeks to expand its $20 billion real estate portfolio in India.

Scale up quickly

Blackstone entered the industrial real estate space in December 2019 through a joint venture with Greenbase Industrial and Logistics Parks, a new company founded by Niranjan Hiranandani, co-founder and chairman of real estate firm Hiranandani Group. 50:50 joint venture (JV) will invest $Rs 2,500 crore to develop industrial and warehousing facilities in various cities across India.

Greenbase will initially occupy 450 acres in Talegaon and Nashik in Maharashtra and Oragadam in Chennai. The strategy is to build warehouses and bespoke or custom-made industrial facilities for companies.

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“As a partner, Blackstone is actively involved in the industrial real estate business. We aim to build a 20 million square foot portfolio in five years,” said Greenbase CEO N. Shridhar. Therefore, we will acquire more land and develop assets. Our goal is to have 500 acres of industrial parks in each country. “Chennai and Pune.”

The joint venture is buying land in new markets such as Mumbai Metropolitan Region (MMR), Kolkata and Bengaluru. To date, approx. $1,700 crore, but as it expands, it will invest approx. $4,500 crore to purchase more land and develop it.

After testing the waters with joint ventures, the company is ready to build a portfolio of its fully owned industrial assets.

In 2021, a few years after entering into a joint venture with Hiranandani, it acquired Embassy Industrial Parks, a large, multi-city portfolio of Class A logistics and warehousing assets valued at $700 million. Class A warehousing facilities are larger in size than other classes; they are strategically located and superior in terms of facilities and construction quality.

Less than a year later, it launched Horizon Industrial Park. Asheesh Mohta, senior managing director and head of acquisitions at Blackstone India, told Mint in an interview at the time that the logistics park business in India will grow faster than the office building business in India over the past decade. This prediction appears to be coming true. In just three years, Horizon has built a massive footprint, in contrast to the commercial office vertical, which took nearly a decade to build a 100 million square foot portfolio.

Blackstone India did not comment on the matter.

“Globally, Blackstone is one of the leading players in the logistics and industrial space. In India, Horizon has expanded aggressively and is probably the most active player today, despite being a late entrant into the industrial real estate space. ” said Chandranath Dey, Head of India Operations, Business Development, Industrial Consulting and Integrated Logistics at JLL Real Estate Consulting.

Today, Horizon and Greenbase jointly have a portfolio of approximately 50 million square feet across 1,800 acres and 38 parks, making Blackstone the second-largest developer in the space behind market leader IndoSpace. They serve clients in a variety of industries, including manufacturing, third-party logistics, and e-commerce.

The asset manager’s top executives are also bullish on the growth prospects of the new vertical. Blackstone may increase its warehouse space in India to 100 million square feet in two to three years, said Kathleen McCarthy, co-head of Blackstone’s global real estate business Bloombergearlier this year.

In an ongoing deal, Blackstone emerged as the highest bidder to acquire three logistics parks – two in Chennai and one in Luhari, Haryana – from warehouse developer Logos India. While about a dozen global institutional players were involved, Blackstone’s bid was slightly higher $1,700 crore, higher than bids from companies such as Singapore’s GIC and Japan’s Mitsui Lines. If the bid is finalized, Horizon will add approximately 5 million square feet of ready-made assets to its portfolio.

Transactions with CWC

In September, Horizon Industrial Parks was selected by state-owned warehouse operator Central Warehousing Corporation (CWC) as the main partner to manage its portfolio of 13 last-mile logistics assets for 45 years. With a development potential of 2.4 million sq. ft., this will be the largest last-mile portfolio managed by an Indian institutional developer. Horizon will invest everywhere $With assets of Rs 700 crore, it can redevelop and upgrade properties free of charge for tenants.

“This is the first time a global investor has partnered with an Indian government on a project. This is a unique opportunity where Horizon has the option of upgrading, demolishing and redeveloping the asset or bringing in new tenants.” Gu, Executive Director, Knight Frank India Consulting Gulam Zia said. This is a build-operate-transfer model in which Horizon will earn revenue from the assets during the transaction.

This is the first time a global investor has partnered with an Indian government project. This is a unique opportunity. — Ghulam Zia

The deal gives Horizon access to city-centric assets in Mumbai, Pune, Bengaluru, Chennai and the National Capital Region (NCR). Last-mile logistics in cities—usually smaller storage spaces close to the end-users of goods—has become important to meet the growing needs of fast commerce and e-commerce companies.

While high land costs in urban core areas have limited most developers from developing last-mile warehousing facilities, the demand is huge. In particular, the boom in express commerce has prompted Blackstone to develop plans to establish last-mile logistics facilities in other markets.

An analyst who asked not to be named said the deal with CWC was like acquiring a ready-made portfolio of last-mile assets in a great location. “Blackstone-Horizon has access to land that would have cost more if they had to buy it at current market prices. They have the freedom to build a portfolio and profit from it, which gives them a huge advantage over other players ”

A game with deep pockets

Prateek Jhavar, managing director and head of infrastructure and real estate investment banking at Avendus Capital, points out that land prices for industrial real estate have almost doubled in the past five years. As construction costs have also risen sharply, it has become more difficult for small developers to thrive. It is therefore not surprising that large institutional players with deep pockets and patient capital, such as Blackstone Group and the Government of Singapore Investment Corporation, are acquiring industrial assets.

“Large players like Blackstone have been aggressively consolidating warehousing assets through a two-pronged approach, where they are acquiring ready-made assets and building large portfolios to ultimately monetize them,” Jhavar said.

Blackstone makes greenfield (land) and brownfield acquisitions for its industrial real estate business. In addition to acquiring a 50% stake in Embassy Industrial Parks and Greenbase, it has made a number of acquisitions, including a majority stake in Allcargo Logistics Industrial Park.

“The key difference is that land and asset ownership and management control all remain with Horizon. This is not the case with some other leading developers and operators, where their investor partners have equal control,” one said a person familiar with the company’s plans who spoke on condition of anonymity.

Rare assets for sale

Blackstone plans to combine its wholly-owned Horizon platform with the Greenbase portfolio to take its industrial real estate business in India public, multiple people familiar with the matter said. Therefore, the current focus is on actively scaling Horizon and Greenbase.

2024 is a great year for Horizon. The company has started operations at five new locations in Chennai, Bengaluru, Nagpur and Pune and has signed leases for 4 million sq. ft. of new tenants. But looking at the bigger picture, Blackstone’s pursuit of rapid growth may run into some problems due to a lack of Class A assets.

“Industrial real estate is a scale game and Blackstone understands scale very well. The problem is that today, most A-grade assets are already owned by institutional players, so the options for buying ready-made portfolios are becoming increasingly limited,” said Anarock’s Agarwal .

The overall warehousing capacity, including Class A and B warehouses, in the top eight cities stood at 418 million sq ft as of September, according to estimates by real estate consultancy JLL India. It is expected to reach 700 million square feet by 2028.

Without many quality acquisition opportunities and increasing competition among well-financed players, Blackstone will have to aggressively acquire land and build assets, which is time-consuming and involves construction risks. Therefore, to cross the 100 million square foot industrial real estate milestone, Blackstone will need to acquire assets and purchase land on which to build.