Saturday, November 17, 2007

Vornado May Increase Investment in India's Chatterjee Group

Vornado Realty Trust, the third- largest real estate investment trust in the U.S., wants to invest more in Indian developer Chatterjee Group as economic growth fuels construction in Asia's fourth-biggest economy.

``We think India's great,'' Vornado President Michael Fascitelli said today in an interview after speaking on a panel about regional investment at the annual convention of the National Association of Real Estate Investment Trusts in Las Vegas.

New York-based Vornado owns about 25 percent of Chatterjee after investing some $125 million in the company and its assets over the past two years, Fascitelli said. Chatterjee, which last year set up a $450 million fund for commercial real estate investment, has development projects including office buildings, research parks, homes and townships.

International investors are seeking to tap India's property boom as consumers spend more of their rising incomes on houses in an economy that grew an average 8.6 percent the past four years. U.S. and European property companies are eager to tap growth in Asia after the collapse of the U.S. subprime mortgage market tightened credit, crimping returns.

India's real estate sector may grow to $90 billion by 2015 from $12 billion in 2005, Moody's Investors Service said in June.

Vornado may later sell its Chatterjee investment through an initial public offering, Fascitelli said.

``Nothing is imminent,'' Fascitelli said. ``We're not a fund that has to exit in three years.''


The Chatterjee alliance, Vornado's first foray outside the U.S., grew out of Fascitelli's 20-year acquaintance with Chatterjee founder Purnendu Chatterjee and inhouse expertise at Vornado, which has several executives of Indian descent, Fascitelli said.

U.S. real estate investment trusts have had difficulty investing overseas because of risks such as taxes and currency fluctuations, Fascitelli said. In markets like India where it's difficult to borrow money, investments also require having a local partner, he said.

``We've wanted a premium for going overseas,'' he said, noting that Vornado rejected a potential investment in London because the returns weren't high enough to compensate for the risks. ``If we can't make double-digit returns, why would I want to schlep over to India?''

Chatterjee Group has stakes in petrochemicals, drugs and software companies. The Indian government opened up real estate to foreign investment in 2005. The dearth of organized funding for real estate projects, largely financed by family-run property developers, is an incentive for investors to enter the business.

Vornado last month said third-quarter profit advanced 2.2 percent. The company has a third of its holdings, 20.4 million square feet, in New York City, much of it in midtown Manhattan where office rents climbed 40 percent in the third quarter.

Merrill Lynch & Co. hasn't decided yet whether to take up space at Vornado's new development site in midtown Manhattan, Fascitelli said. Before Merrill replaced its chief executive officer in recent weeks, the New York Times had reported that Merrill appeared poised to leave downtown for Vornado's site.

``Merrill Lynch is up in the air,'' Fascitelli said. ``It's not a done deal.''



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