RREEF completes first India investment

The real estate investor spends $70 million for a stake in Golden Gate Properties which focuses on developments in southern India.
Deutsche Bank investment unit RREEF invested $70 million in Indian real estate firm Golden Gate Properties, in its first deal since Deutsche enhanced its focus on direct real estate investing in the country in 2007.

Golden Gate has been developing real estate projects since 1997. It has completed eight residential and two commercial projects in southern Indian cities, Bangalore and Hyderabad. It is currently building 20,000 units across nine projects with a built-up area of 23 million sqf. It is also planning mixed-use developments and special economic zones.

Golden Gate will retain a geographical focus on southern India with future projects planned in Chennai, Vizag, Coimbatore and Mysore, in addition to the two cities it currently operates in. The real estate developer will selectively pursue opportunities in other Indian cities where the growth of information technology businesses is driving the demand for residential and commercial real estate.

ôThe Golden Gate brand for construction is well-established in India in the middle and upper-middle class income segment which it targets,ö explains Kishore Gotety, who heads Deutsche Asset ManagementÆs real estate and infrastructure investment advisory services in India. ôThis is a sustainable and high-growth niche, which made Golden Gate a compelling investment opportunity for us.ö

Golden Gate ran a limited auction for the stake, on which it was advised by Fortune Financial. Others reported to be in the running over the last six months included ABN AMRO, Credit Suisse and Kotak.

The size of the stake that RREEF will own has not been disclosed but it is generally thought it is a significant minority. RREEF will have the right to nominate two directors on the board of Golden Gate and will enjoy all minority protection rights typical to such investments.

The investment was driven by Golden GateÆs plans to acquire land and develop projects, say sources close to the deal.

ôThere is also immense value in the fact that Golden Gate has an in-house construction team,ö adds Gotety. ôThis helps to control costs by cutting out one level of intermediation, but also ensures that the firm can plan and adhere to its schedules without being constrained by the vagaries of contract labour.ö

RREEF Alternative Investments is the global alternative investment management business of Deutsche BankÆs Asset Management division, with assets of $97.3 billion as at September 30, 2007. Real estate is one of RREEFÆs core businesses. Deutsche Bank has closed some structured equity deals in Indian real estate companies but this is RREEFös first investment.

RREEF pulled off a coup in 2007 when it poached ICICI veteran, Kishore Gotety, to head its India business as country head of Deutsche Bank Asset Management. Gotety earlier headed the real estate business at ICICI Venture. Gotety has a well-developed understanding of the industry and its players and specialists comment that this would have helped RREEF to so quickly announce its first India deal.

It has been a busy week for real estate investing and disinvesting in India. Northern India focused real estate developer, Vatika, announced that Baer Capital of Dubai would invest $150 million. This is VatikaÆs second round of funding -- it already boasts names like Goldman Sachs and Wachovia from the first round.

In another deal, Emaar MGF's draft red herring prospectus showed that private equity firm, CVC, had sold part of its holding in Emaar MGF to hedge fund DE Shaw, cashing out at a large profit.

Specialists expect to see more secondary sales like the Emaar MGF deal. ôA number of alternative asset managers are interested in adding some India real estate assets to their portfolio but have neither the origination ability nor the management skills to source deals,ö comments a source. ôAcquiring a stake from another investor meets multiple objectives.ö

Indian stockmarkets have been on a roller coaster ride since yesterday as contagion from the subprime nervousness finally hit India. They staged a minor recovery in the latter part of the day's trading but the Sensex still closed down 5% or 850 points. The Sensex is now at 16,729, down from levels above 21,000 reached just two weeks ago.

It remains to be seen what impact the stockmarket correction will have on other asset classes such as real estate. For RREEF, its first investment could not have happened at a more volatile time.
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