ABN AMRO Asset Management has joined forces with Ajia Partners, a Hong Kong-based private investment company owned by high net-worth families in Asia, to establish Ostara Partners, a platform for a series of funds that will invest directly into Asian real estate. The first fund will focuse on Japanese suburban retail centres and includes Mitsubishi Corporation as a partner and co-investor in the fund.
"Japan's cyclical upturn is moving through to consumers, and we see increasing trends in suburban retail shopping, especially in the home centre and supermarket sectors," says John Lee, portfolio manager at Ostara. "Trends are moving towards larger discount retail stores in decentralised locations. We expect values of this type of space will follow the office sector where we've already seen signs of tightening yields and improved liquidity."
Lee joins from the Ajia side, where he will be partner for real estate investment, and has over 20 years of investment experience with Lend Lease, most recently as head of Asia real estate investments based in Japan. He says the fund will focus on higher yielding retail assets where the firm has a greater chance of adding value.
"Some Japanese companies overstaff to manage property, so there is often potential to shave costs by 20% in some of our investments by introducing professional property management," he comments "Moreover, we can implement optimal tenant mix and maximum usage of plot ratio."
He adds that there are several opportunities for exiting as well. "As office sector yields tighten further, we believe lots of institutional buyers and J-Reits will look to the retail sector for stabilized property with good yields," he says.
The Ostara Japan Retail Partnership has a minimum investment of $5 million. The fund has already had its first close at $90 million, and will shortly see its second close at $150 million.
"After gearing, the fund will have a sizable $500-$600 million to invest," says Douglas Hansen-Luke, head of strategic sales and marketing at ABN AMRO Asset Management in Hong Kong. The fund is set to earn 10% per annum for its five-year life from dividend yields, and is targeting a 16% per annum total return including value-add.
"If markets go up, investors have the potential to see further upside," Hansen-Luke says. "We've had investments from four large European pension funds and interest from institutions in Australia, the Middle East and the US. Investors are very interested to gain exposure to Asian real estate."
Hansen-Luke points out that putting together the right partnership was essential for the success of the platform. "ABN AMRO brings independent corporate governance, a macro overview of investment trends and leverage capabilities, ' he notes, "But our private equity team is not that experienced in Asian real estate. Ajia brings to the table its experience with private equity deal evaluation and fund construction in the region, as well as its relationships." However, he emphasises that the key for investing in real estate is to have a local partner on the ground who has access to deal flow.
"We've partnered with Mistubishi for the Japan retail fund. They are one of the largest property investors in Asia and manage one of Japan's leading J-Reits," he adds. "They will give Ostara the first right of refusal for the type of suburban retail centres we are targeting."
Hansen-Luke says that next in the pipeline will be funds focusing on office and logistics sectors in Korea and residential development in China. Ostara has already lined up local partners in these markets.