Wall Street bankers disappear from REIT IPOs as domestic investors take centrestage

REIT

• Indian REIT IPOs now led by domestic investors, not Wall Street banks.
• Recent REIT IPOs in India feature only domestic banks as lead managers
• Foreign investment in Indian REITs declines due to global macro uncertainties.

Did our AI summary help?

Wall Street titans such as Morgan Stanley, Citi, Bank of America and JP Morgan, have disappeared from the banker syndicate of a lucrative equity capital markets segment they once dominated - real estate investment trust (REIT) IPOs.

It's not because the fee income for these products is not attractive enough, which is usually the primary reason for such marquee names to avoid smaller deals or initial share sale of state-owned companies well known for paying low fees.

Industry experts said that the primary reason for this trend is that the Indian REIT market has come to be dominated by domestic investors of all shades - institutions, family offices, and high net-worth individuals - with foreign capital playing a miniscule role in these transactions, effectively leaving Wall Street bankers irrelevant for issuers.

“They (foreign banks) have no contribution to make, as these deals are now largely being driven by domestic participation,” said a senior equity capital markets investment banker, speaking on condition of anonymity.

Last week, Bengaluru-based Bagmane Prime Office REIT filed its draft IPO papers with market regulator SEBI. The real estate developer is working with a banker syndicate of seven banks for a fundraise of Rs 4,000 crore. All the seven banks working on this REIT IPO are domestic investment banks.

Typically, in the equity capital markets space, any deal that is more than $200 million in size features at least one foreign bank, if not more.

However, recent trends indicate that REIT listings in India no longer need Wall Street’s advice. This trend has emerged due to the dominance of domestic capital flows into REITs, which has far outshone demand from foreign investors.

Case in point is the last REIT IPO of Knowledge Realty Trust, sponsored by Blackstone and Bengaluru-based Sattva Group.

The trust, which raised a total of Rs 4,800 crore in August, saw just a paltry subscription of Rs 100 crore from foreign investors in its anchor book allocation of Rs 1,620 crore, highlighting the sheer dominance of domestic capital in REITs in recent times. The Knowledge Realty banker syndicate included two wall street banks out of a total of eight bankers.

Departure from the past

This was not the case in the past.

Consider the example of Blackstone’s mall REIT - Nexus Select Trust - which raised Rs 3,200 crore in 2023 and had a banker syndicate of 10 banks including five foreign banks. The so-called ‘left lead’ banker position on this deal was held by a Wall Street investment bank. The left lead banker is the one which leads the transaction working closely with the issuer to prepare the draft IPO prospectus, deals with the market regulator and takes home the biggest chunk of the fee pool.

A managing director with a domestic investment bank, who spoke on the condition of anonymity said the dominance of domestic investment banks in REIT offerings mirrors a similar trend across various equity capital market transactions such as infrastructure investment trusts (InvITs) and technology IPOs, where domestic banks are now playing a larger and more significant role in

“This trend is only going to get stronger as domestic capital becomes more and more important for equity capital market deals. Domestic inflows have sharply increased in recent years, while we have seen huge outflows from FIIs. Foreign bankers' strength lies in their FII relationships, and their Indian franchises are very weak when it comes to local investors, especially wealthy clients like family offices and HNIs,” he said.

The demand for yield products like REITs and InvITs is today completely being driven by domestic investors, while foreign investors have stepped back as emerging market yields are not that attractive for them, especially when one adds the sharp currency depreciation to the mix, the banker added.

In a recent interaction with Moneycontrol, Kotak Investment Banking MD V. Jayasankar pointed out that since 2022, domestic inflows have been around $200 billion, compared to net outflows for FIIs, helping domestic banks play a much larger role across sectors such as financial services, real estate, and infrastructure.

Why foreign investors are currently not keen on Indian REITs?

According to Vipin Singhal, Associate Director, Anand Rathi Advisors, Indian REITs are witnessing a shift in their investor base, with DIIs, HNIs and family offices emerging as the primary demand drivers, while participation from FIIs remain relatively muted. This reflects a combination of deepening domestic capital pools, yield-driven investment preferences, and global macro headwinds, which have made FIIs more selective about making allocations to Indian real estate-linked instruments, he said.

“REITs offer stable cash flows, making them attractive to domestic investors seeking predictable income in a volatile equity environment. For HNIs and family offices in particular, REITs provide exposure to high-quality commercial real estate without the operational and capital intensity associated with direct property ownership,” Singhal added.

Domestic institutional investors have overtaken foreign investors in overall ownership of Indian equities, reflecting the growing depth and confidence of local capital, he said.

“In contrast, FII participation in Indian REITs has been limited due to multiple factors such as:

Global macroeconomic uncertainty - higher global interest rates, a strong US dollar and uneven global growth have prompted foreign investors to prioritise liquidity and capital preservation," he said.

Singhal pointed out that for FIIs, returns from Indian REITs would be evaluated after factoring in potential rupee volatility, as even relatively attractive yield benefit can be diluted if currency movements turn adverse