Dynamics of Real Estate Mergers & Acquisitions in India

In the dynamic realm of real estate mergers and acquisitions (M&A), the tide has turned toward strategic growth. During the pandemic, consolidation was the anchor that steered M&A forward as big players acquired struggling projects, propelling a staggering 126% surge in 2022, driven by robust domestic demand, firm financials, and favorable interest rates. This wave of progress was amplified by:

• Expansion into Tier 2 and Tier 3 cities
• Collaborations for sizeable land parcels
• Diversification into novel sectors
• Emergence of specialized domains
• Government endorsement, with construction ranking third among 14 major sectors recognized by the Indian government
• Millennial sway, reshaping real estate as a lucrative investment, fueling demand in the residential sector
• Government initiatives, such as incentive schemes and relaxed regulations, aimed at rejuvenating stalled housing projects
• Relaxed investment rules, elevating cash flow due to PE investment easement
• SEBI's pivotal role, sanctioning the REIT platform, unveiling investment avenues worth billions

Yet, potential challenges like contractual vulnerabilities, ESG compliance, global slowdowns, and the imperative of due diligence might temper this trend. However, the Indian real estate sector's resilience, buoyed by government support and promising growth prospects, seems poised to maintain its M&A momentum.

Meanwhile, within the broader M&A landscape, the early months of 2023 witnessed a notable slowdown, as highlighted by Refinitiv, indicating a 75% year-on-year drop to USD6.6 billion. Despite global headwinds like the Ukraine conflict and economic deceleration, real estate has exhibited steadfastness.

Expert projections foresee the commercial real estate sector soaring to USD 90 billion by 2030. This sector's allure to private equity and institutional investors secured a spot among the top 10 for M&A in 2022.        

These transactions are largely steered by institutional investors and developers, with government initiatives significantly shaping the landscape. Here's a snapshot of notable deals:

• To expand its footprint in Indian real estate, Blackstone in May 2021, acquired the Embassy Industrial Park portfolio at INR 5,250 crore (US$ 716.49 million)
• In June 2021, GIC acquired a small portion of Phoenix Mills’ portfolio (worth US$ 733 million) across all the asset classes with a primary focus on the retail sector
• In November 2021, in the largest deal of the standalone commercial tower; Ascendas India Property Fund trustee manager a wholly owned subsidiary of Singapore-listed Capital and Investment, bought Aurum Ventures’ 16-storey commercial tower in Navi Mumbai for INR 353 crore (US$ 47 million)
• Marriott International enter a joint venture pact with Prestige Group and DB Realty for new two hotels in November, 2021
• Lodha Group and Morgan Stanley Real Estate Investing enter a pact for developing an industrial and logistics Park near Mumbai in December, 2021
• Axis Bank and Square Yards partner to launch a co-branded home buyer ecosystem in September, 2022
• Godrej Properties and Neelkamal Realtors enter a joint venture for a project in Mumbai in December, 2022
• Brookfield India REIT bought Noida office park from Seaview Developers Pvt Ltd in December, 2021
• Abu Dhabi Investment Authority buys Blackstone Group stake in Mindspace REIT in January, 2022
• Birla Estates acquired 28.6-acre land in Bengaluru in May, 2023
• Brookfield Asset Management to acquired 51% stake in Bharti Enterprises’ 4 commercial properties and formed a JV in May, 2023
• Bombay Dyeing sold its Worli land to Goisu Realty for Rs 5,200 crore in September, 2023
• Morgan Stanley Real Estate Investing enter a JV pact with Prakhhyat Group for a warehousing project in August, 2023

Real estate transactions (M&As) encompass private entities trading development rights, joint ventures, and business transfers, strategically designed within regulatory frameworks. Special purpose vehicles (SPVs) utilized in projects aren't publicly traded, distinguishing them from publicly traded entities bound by securities regulations.

This journey begins with preliminary agreements that set terms, enforceable post advance payments. Subsequently, purchase agreements delve into detailed representations, negotiations, due diligence, and legal provisions. Tax considerations influence transaction structures, and the choice of acquisition entities varies based on investor profiles and transaction types.

Challenges in this landscape involve due diligence, compliance, and adapting to evolving ESG standards. Post-closure, environmental liabilities fall on acquirers, managed through contract clauses. Negotiation pivots on approvals, timelines, and funding sources.

Legal due diligence encompasses title searches, compliance checks, aided by construction consultants. Remedies for title issues involve various authorities, while primary agreements focus on title, payments, and contractual obligations. Breach resolutions entail damages and injunctions, while financing avenues span loans or equity, shaped by asset nuances and financial implications.