Blackstone builds Indian real estate empire The public debut of Hilton Hotels in December capped one of private equity's most lucrative deals for Blackstone, which bought the chain in a highly leveraged $27bn takeover in 2007, turning its $6bn of equity into about $14bn. The acquisition was led by Blackstone's real estate arm, the largest of the private equity group's four divisions with $69bn out of a total $248bn of assets under management. Real estate has also been Blackstone's best performing business, with revenues up 49 per cent to $1.8bn in the quarter to September. Jon Gray, head of real estate, is seen as a contender to succeed Blackstone founder Steve Schwarzman when he eventually retires. But Blackstone's strategies in different real estate markets vary significantly. In India, it has quietly amassed one of the country's largest portfolios of office space. But unlike Hilton, bought at the market peak with large amounts of debt, it bought its Indian properties near the trough with little leverage and has taken advantage of the difficulties of those who bought at the top with borrowed money. Now Blackstone, which today has 28m sq ft of office space in the country, is accelerating its acquisition pace in India. It is in discussions to acquire two office portfolios totalling an additional 7m sq ft spanning Mumbai, Pune and Bangalore with its existing partners Panchshil and Embassy. Among its expected targets is the Indian Express office tower in Mumbai in which Blackstone is a tenant. Yet it has so far spent less than $800m putting together its portfolio, completing some deals at a fraction of the prices previous owners had paid. Blackstone's progress in Indian real estate is striking given the difficulties of operating in the country's often corrupt property market, and where economic growth, at under 5 per cent, is less than half what many had expected it to be. Interest rates are also high. In no other major emerging market has the drop in land values been as great as it has been in India, according to Blackstone's internal research. Meanwhile, the group's wider portfolio of corporate investments in India has been troubled, hit by the country's slowing growth and a big drop in the rupee. In December Akhil Gupta, Blackstone's head of operations in India, was replaced by two co-heads after writing down the value of several deals. But Blackstone's huge amount of capital has also given it credibility with counterparts and partners, a particular advantage in India where capital is scarce, especially for cash-strapped local developers who overbuilt on the faulty expectation that the double-digit growth of a few years ago would continue indefinitely. "People need liquidity and we can fill the void," says Mr Gray. Despite its deep pockets, for almost four years it did almost nothing. "We came when everyone else had left the party," says Tuhin Parikh, who heads Blackstone's Indian real estate operations. The investment environment is much saner now.  Blackstone has also avoided getting involved in property politics by never investing in greenfield projects, which need sensitive land acquisition and long drawn-out approvals that can take years. Instead, it focuses on taking over existing projects from cash-strapped developers. Indeed, Blackstone is arguably the biggest beneficiary of the troubles hitting the country's biggest developers such as DLF and Unitech, which have been forced by heavy debt burdens to sell non-distressed assets to redeploy capital elsewhere or repay their banks. Shares in DLF, for example, have fallen about 60 per cent from their peak in the autumn of 2009. "Developers are riding a tiger," says one analyst. They can't shut down their machine. They need the cash flow of new projects to pay for the previous projects. Almost all Blackstone's Indian real estate consists of office parks in fast-growing cities such as Pune. Its tenants tend to be foreign companies that require modern facilities and reliable power. Tenants include financial groups such as Barclays and Goldman Sachs, manufacturers such as Siemens and Nokia, and tech firms including Google and Yahoo. If growth slows further and the rupee continues to slide, Blackstone may yet find itself in the same predicament as more optimistic developers. But with Indian regulators expected to permit real estate investment trusts to list, Blackstone may soon have another way to cash out of its Indian property investments at a profit.