Real Estate Investment Trust: Arjun Lall speaks on Embassy Blackstone REIT IPO

The Embassy Office Parks REIT IPO, sponsored with the aid of global non-public fairness company Blackstone Group and Bengaluru-primarily based developer Embassy Property Developments Pvt Ltd, was subscribed 2.57 times during its initial proportion sale among March 18 and 20. The IPO saw the REIT boost a complete of ₹4,750 crore (US$690 million).
This is the primary ever Real Estate Investment Trust (REIT) in India – a main milestone in the real property sector.
It may also be Asia’s most abundant in phrases of office portfolio location, with seven workplace parks and four office buildings unfold throughout Mumbai, Bengaluru, Pune, and Noida, spanning 32.7 million square toes of leasable place.
Cyril Amarchand Mangaldas is the Indian prison counsel to Embassy REIT, the Manager, the Embassy Sponsor, and the Blackstone Sponsor. Clifford Chance (lead Partner Rahul Guptan) acted as the International legal recommend for Blackstone and Embassy Property Developments. Simpson Thacher & Bartlett is the International prison recommend for the Blackstone Sponsor.
S&R Associates (lead Partner Sandip Bhagat) acted as home felony recommends for the Lead Managers and Latham & Watkins had been the International recommend.

We communicate to Cyril Amarchand Mangaldas Partner Arjun Lall, the lead companion who oversaw the list of India’s first REIT, on what have been the challenges, how REIT isn’t the same as other offerings, and much more.
The offer file says that the first filing of Embassy REIT was in August 2017. Since this changed into the first REIT without any precedents, how difficult turned into it?
The complete process has been challenging and interesting from the get-move. August 2017 was only the registration of the Embassy REIT because of the first REIT in India. But work in this transaction first began in 2013, even earlier than the REIT Regulations had been notified. It turned into a collaborative technique driven by using the lead merchant bankers with the regulators and supported by using the sponsors and advisors like us, running to make sure that the regulatory framework for this product married the fine of worldwide practices with peculiarities related to the Indian actual estate zone.
While the REIT Regulations were notified in 2014, there were numerous conceptual troubles that the organization grappled with on the very beginning – from whether REIT units might be taken into consideration ‘securities’ for the SEBI framework, to what instructions of investors may want to spend money on REIT units.
Similarly, from a process and disclosure point of view, it took some time earlier than there was sufficient clarity on troubles along with the form and way of instruction and presentation; of economic records and projections of the REIT; the manner and timing of acquisition of the asset portfolio; the manner in which REIT IPOs might be underwritten; whether REIT IPOs ought to consist of a suggestion on the market element, and so on.
Aside from the policies, there were different teething problems standard to any nascent regulatory surroundings which the working institution faced – absence of a separate buying and selling platform for REITs on the inventory exchanges, necessities for listing and buying and selling approvals for REITs, in addition to procedural formalities related to the difficulty and allotment of devices.
Resolution of these matters required the concerted efforts of several regulators and authorities departments other than SEBI and inventory exchanges, consisting of the RBI, the MCA, the PFRDA, the IRDAI and so on. Fortunately, each of the regulators and government departments has been receptive to the worries and troubles highlighted and labored collectively with SEBI and the relaxation of the operating group over the last few years towards the evolution of a comprehensive regulatory framework for the setting up and list of REITs.

We wouldn’t call them demanding situations per se, but there are sure intrinsic variations in putting in and list a REIT vis-à-vis an imparting of equity stocks, which might require issuers and promoters to the method the process in another way. For instance:
The promoter equivalents (referred to as sponsors below the REIT regime) are required to cede control of the portfolio belongings to the REIT and the control and manipulate of the belongings vests with an unbiased REIT manager. While sponsors will keep devices within the REIT and experience rights as unit holders, all investment and control selections when it comes to the property will be undertaken with the aid of the REIT manager.
Given the ordinary protecting systems in the Indian real property region, which includes co-mingled property, multi-stage preserving systems, business preparations with landowners along with JDAs, JVs and many others, a huge stage of notion method and restructuring of asset holdings can be required to ensure compliance with the REIT Regulations. In addition to the vast documentation involved within the manner (relying on the way wherein the transaction is structured), control time can also be diverted towards negotiations and discussions with various stakeholders in the assets to make sure their buy-in.
Linked to the above are the regulatory approvals required for the purchase of property along with endorsements from the SEZ Authorities, country-particular land development authorities, and so on, depending on the nature of the asset.
Given the interaction between the sponsors, sponsor group, supervisor and their directors and KMPs, a comprehensive company governance framework will need to be put in location to address capability conflicts of the hobby.
There can also be the involvement of intermediaries that are specific to the REIT IPO procedure – values, for example. Similarly, there could be disclosures in the provide files which include projections, combined financials, and so forth, which are not standard in an IPO/QIP report.
Since this transaction calls for a significant quantity of real estate due diligence, did your company adopt all of the persistence, or turned into it outsourced?
Yes, there was a massive quantity of due diligence concerned, considering the holding structure of the Embassy REIT, comprising of 10 unique reason cars, a maintaining company, and an investment entity. The due diligence of most of these entities forming a part of the Embassy REIT keeping structure became undertaken through our firm. The identify due diligence duty, however, turned into shared by more than one law corporations (based on ancient familiarity with the asset), which includes by using our firm. All identify reports now not prepared by using us had been reviewed through us as recommend to the REIT and the Manager.
Can you give an explanation for the REIT in a simple and clean way?
A REIT or an actual property funding consider a funding vehicle installation as a consider below the Indian Trusts Act, 1882.
The sponsors of a REIT (corresponding to promoters of an employer) are the settlors of the agree with. The sponsors are required to rent a SEBI registered debenture trustee because of the trustee of the REIT.
The sponsors additionally have the number one obligation of transferring their hobby inside the portfolio assets to the REIT. The possession of the belongings vests within the REIT and the unit holders are the beneficiaries of the REIT.
The portfolio belongings are held by using the REIT without delay or circuitously through one or tiers of conserving businesses/personal cause automobiles.
The trustee is needed to delegate all funding and management decisions to a supervisor appointed by way of it below the policies.
The manager is liable for the operation, management as well as funding selections of the REIT and the REIT belongings.

The REIT (i.E., The consider with its underlying portfolio assets) undertakes an IPO of units (each unit representing a beneficial hobby inside the property of the REIT) and is indexed on stock exchanges.
The REIT is after that required to mandatorily distribute ninety% of the internet distributable coins flows bobbing up out of the REIT belongings to its unit holders, on a half-every year foundation.
What is the tentative term for a REIT to close? Is it the same time as that of an IPO?
A REIT list can take anywhere among 6-nine months from acquiring REIT registration, which is about the same amount of time taken for an equity IPO.
The REIT registration technique itself could take among 1-three months. The time frame is largely depending on the readiness of the events to the REIT, as well as the time taken in arriving at and imposing a possible protecting structure for the portfolio assets.
How big was the group that oversaw the whole method?
We had over 50 legal professionals (consisting of 15 companions) across practices, advising on diverse exceptional factors of the transaction, which includes the corporate restructuring, actual estate diligence, financing elements, regulatory interface, competition law, disputes, and many others.
Will this be a recreation changer for the Real Estate marketplace?
Absolutely. The product was added by SEBI with a twin cause of imparting a whole lot-wanted liquidity to the cash strapped real property marketplace, as well as supplying public investors with a low-hazard funding street. The response to India’s first REIT has been superb and encouraging as well, and the product has observed takers amongst both institutional as well as non-institutional buyers.
The fulfillment of India’s first REIT is probably to present impetus to many extra actual property builders to opt to monetize their belongings thru REITs inside the near future.

Eddie Bowers
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