AEW Capital Management, a $43 billion manager of real estate private equity and listed securities, is in the midst of deploying a $560 million PE fund targeting Asian property. With leverage, the Massachusetts-based firm can allocate around $1 billion to the region, provided it can find the right investments.
Peter Wittendorp, head of AEW Asia-Pacific in Singapore, says one of the most attractive areas now is commercial space in the Lion City. Prices haven't come down as much as buyers might like, and rents have fallen. But bid/ask spreads have tightened and the market has been oversold, he argues.
Now Wittendorp sees private wealth returning to pick up bargains in Singapore's office space. And as developers' debt rolls over, they are becoming more realistic about pricing. "The commercial rental side has clearly bottomed," he says. "Yes, rents are low, but people are signing leases again."
AEW, a unit of Natixis Global Asset Management, is ignoring Singapore's residential market, where prices for high-end properties are striking record levels. It might consider properties catering to the mass market, but there too prices are starting to climb.
The firm also likes retail commercial space in Hong Kong and China, where it can find deals. The prime opportunities in Hong Kong tend to be held closely within the local-developer community and outside capital isn't usually allowed in. But there are interesting smaller projects both on the mainland and in Hong Kong, says Wittendorp.
He is also keen on the logistics sector, both in China and regionally. "If the world recovers, people need products, and the industrial sector is where those products are made," he says. The challenge is to avoid buildings whose commercial or manufacturing purpose is too specific, in case a particular business activity doesn't recover.
AEW also pursues transfer-asset assignments (that is, winning assets from other fund managers when clients consolidate mandates).
Jeffrey Furber, AEW's Boston-based chief executive, rejects the notion that Asian real estate is in a bubble. "Sure, you read about a record transaction in the newspapers, but the same goes for London and New York," he says. "A bubble comes from too much credit, too much lending -- Asia's never suffered from that."
He says boutiques such as AEW see better opportunities to invest in transactions in Asia now that many competitors have pulled back or disappeared. Most global capital invested in Asian real estate has come in the form of opportunity funds launched by the likes of AIG, Citi, Lehman Brothers and Merrill Lynch. Furber says these players are not as active any more -- or are out of business -- in Asian real estate due to financial concerns at home.
Moreover, Furber says real estate markets in Asia are the only ones functioning normally. Lending and leasing activity remains on hold in the US and weak in Europe. Asia continues to offer investors transactions across the risk spectrum, from greenfield to value-added deals to core income streams to distressed or opportunistic.
"For real estate investing to pay off, you need job creation," Furber says. "Asia's going to keep creating jobs over the next two years. The US may recover, but it looks like it's going to be a jobless recovery." That suggests more investors will be looking to Asia for real estate exposures.
AEW closed an Asia-focused private equity fund last year with an eight-year maturity and a two-year extension. It has another two years to fully deploy its cash.