Blackstone is engaged in discussions to divest a substantial portion of its interest in India’s leading real estate investment trust, Embassy Office Parks, to Bain Capital, as per information from two sources. The deal, which is based on current market prices, is estimated to be worth around $480 million.

A potential transaction would signify Bain Capital’s inaugural investment in a Real Estate Investment Trust (REIT) in India, where the demand for office space is increasing as the effects of the COVID-19 pandemic are subsiding and employees are returning to the workplace. For Blackstone, it would involve further divesting its stake in Embassy Office Parks as part of a portfolio realignment strategy.

According to sources familiar with the matter, the discussions between Blackstone and Bain Capital are still in the early stages. The proposed plan is to carry out the transaction through block deals on Indian stock markets in the near future, however, a specific timeframe or price have not been determined yet, as per the first source who has direct information of the matter.

Blackstone did not provide any statement when asked for a comment, while Bain Capital and Embassy Office Parks did not respond to inquiries for comment. The sources preferred to remain anonymous as the negotiations are confidential

Embassy Office Parks, India’s first Real Estate Investment Trust (REIT) to go public in 2019, holds and manages over 43.2 million square feet of office parks and buildings in cities like Bengaluru and Mumbai. It is also the largest office REIT in Asia in terms of area.

REITs, similar to mutual funds holding stocks, own and operate real estate assets. They generate income from the properties they manage, which is then utilized to pay dividends to investors.

Blackstone currently holds a 24% share in Embassy REIT, which has a market capitalization of almost $4 billion. The private equity firm is proposing to sell around 10-12% of it, as per the sources. This would be valued at $400 million to $480 million, based on the closing price of Embassy REIT on the Mumbai stock exchange on Monday.

This block trade will be Blackstone’s fourth divestment of its stake in Embassy, following previous sales in the years 2020, 2021 and 2022. In September, Blackstone sold $400 million in the REIT to investors including the Abu Dhabi Investment Authority.

Despite some inflation concerns, India’s economy has made a strong recovery since the COVID-19 pandemic and is currently one of the fastest-growing major economies globally.

Knight Frank, a real estate consultancy firm, reported this month that the cities of Bengaluru and Mumbai recorded the highest growth in office rentals in the Asia-Pacific region during the period of October to December. The firm also predicted that office rentals in Indian cities will continue to rise in the coming year.

Bain Capital, which oversees over $160 billion in assets worldwide, has invested over $3 billion in India over the past 10 years, including in major Indian private lender Axis Bank.

For Blackstone, the move is about realizing a return on investment.

If the transaction with Bain Capital is successful, Blackstone would have divested a total of units valued at $1.4 billion in the Embassy Real Estate Investment Trust over the past three years, as stated by the first source with knowledge of the matter.

Shobhit Agarwal, CEO of Anarock Capital, stated that Blackstone’s strategy of reducing its stake in Embassy is to rotate its capital. Office assets in India have reached maturity and Blackstone is now considering investing in newer asset classes such as retail and data centers, where the returns are potentially higher, according to Agarwal. He added that Blackstone is betting on the growth of domestic consumption in India.

Agarwal further noted that while Blackstone is divesting from certain REITs, it is also making new investments, demonstrating that it still maintains a positive outlook on the Indian real estate market. The U.S. firm has invested over $11 billion in Indian companies and assets over the years.