MUMBAI: India’s largest office space owner Blackstone has held discussions with its largest builder partners, including the Embassy Group, RMZ and Salarpuria developers, to create a strategy for tenants that are either seeking deferral in rent payments or invoking force majeure clauses, three people familiar with the development said.
Other private equity players, such as Brookfield, Xander, GIC and Ascendas, are also expected to adopt similar strategies, allowing rent deferral for a limited period to avoid the invocation of force majeure clauses.
“Private equity firms have held multiple discussions and sought legal opinion on how to deal with a situation where tenants implement the force majeure clause,” said an official who is privy to the talks. “The prevailing sentiment is that owners and tenants should sit across the table and find a workable solution to avoid financial burden on any one party.”
Large tenants that have already paid rents for April are also in talks seeking rent deferral, depending upon how long the lockdown period extends.
Blackstone declined to comment. Industry sources said the private equity company had already garnered 60 per cent of the rents for the month of April from the properties it has leased out.
The lockdowns, in force since the third week of March, are expected to bleed businesses, with several economists projecting FY21 GDP growth even below 2 per cent.
“We will work with the smaller players and others such as food court operators that have been badly hit and rework some terms to help them tide over these difficult times. Otherwise, most of our bigger tenants have already paid the rent for April,” said another fund manager.
In the past 10 years,commercialoffice spaces have seen investments of nearly $15 billion, led by Blackstone,Brookfield Asset Management, GIC Pte Ltd, Ascendas-Singbridge Group andXander InvestmentManagement Pte Ltd.
PE firms argue that since the servers of these companies were housed in the leased premises, the tenants were continuing to use the space. The force majeure clause applies when the tenant is unable to access the property or it is damaged due to a natural calamity.
“We are maintaining the facilities even though no one is coming to work or staff members are working remotely. Most of the physical infrastructure of companies such as servers and other assets are still housed in the buildings, and we have to maintain them,” said a senior executive with one of the leading PE funds. According to him, the fund’s global experience shows that this is a minor and temporary blip and most tenants are able to tide over it.
Builders are now relying on a Hong Kong court ruling following the 2003 SARS breakout. The court had ruled that a tenant is not entitled for any relief. Another issue with most rental commercial real estate owners is that they avail LRD (lease rental discounting) loans against these rental incomes and unless the banks rework their repayment terms, they will be unable to pass on the benefits to the tenants.
“It has been observed that while the larger, tier-1 MNC occupiers have not been requesting for lower rentals, many smaller entities have begun this discussion with their landlords,” said Anuj Puri, chairman, Anarock Property Consultants. “Office space owners have largely taken the stance that while their spaces may currently not see employee footfalls, companies still occupy space in terms of office equipment. The current phenomenon itself, while unprecedented, is also seen as strictly shortterm and once the lockdown lifts, offices will start seeing employee footfalls again.”
April 14, 2020