Axa Real Estate Investment Management has followed up one local strategic relationship, announced with Ping An Group in July, with a similar deal in Japan with Sumitomo Trust & Banking.
Frank Khoo, global head of Asia at Axa Reim in Singapore, says the firm last year decided to become a major player in Asia and the United States, and is looking to develop a presence in China, India, Japan and Australia.
Axa Reim has €40 billion ($60 billion) under management, making it the fourth-largest manager in the world of non-listed real estate funds, according to European industry association Inrev.
To date only around €2 billion of that is sourced from Asia-Pacific. Axa Group has a goal of deriving 20% of managed assets from Asia by 2012. Initially, Khoo sees the firm's role as bringing European capital to Asian projects, but wants to facilitate Asian capital investments into Asian or European assets as well.
"Our global competitors are shrinking or are not expanding, and it's a buyers' market right now -- so this is a good time to enter the market," Khoo says.
He joined Axa Reim last year from Pacific Star, where he had both run portfolios as well as held business development roles. The firm has had an office in Japan since 2006, opened in Singapore in 2008, and is now in the process of setting up in China, with Ping An, and in Australia.
The regional team is 12 now but, if all goes to plan, Khoo sees this at least doubling in size by the end of next year. The firm expects to need more transaction bankers and asset managers locally in markets such as Japan, Australia and China.
The Ping An deal is a major determinant of success. At the corporate level, this is Axa Group's first formal interaction with Ping An. If the partnership works well, it could establish a deeper relationship.
For Axa Reim, the deal is also a benchmark, because it may want to set up similar relationships with partners in other regional markets.
"We prefer to work with local partners because, while we are a big fund manager, we need them to execute deals," Khoo explains.
In China, both Axa Reim and Ping An will work as limited partners and as general partners to identify good developers and finance their projects. Ping An can raise money in China and has a useful network of public and private connections. It can also help manage risks and serve as a bridge between Axa Reim and local developers.
Axa Reim brings its own client list and a long history of private real estate investing. It can set up feeder funds or special-purpose vehicles for foreign investors.
In this market, the partners will target mid-tier residential projects, all denominated in renminbi. Axa Reim is not interested in the commercial sector right now, given oversupply and high vacancy rates. Retail is better, as it reflects trends such as urbanisation and the growing middle class -- but it's riskier because the payoff period is longer. Residential projects are self-liquidating and self-financing as such the holding period is shorter, which will help mitigate some risk.
India offers a similar profile (and the regulations there also limit foreign capital to certain greenfield projects), although Khoo is not certain whether Axa Reim will seek a partner or liaise directly with developers there.
Japan and Australia offer completed commercial projects that pay steady income streams. Axa Reim would like to become active in Tokyo's small- to mid-size office sector. Khoo says the grade-A sector is dominated by a handful of local developers and would be difficult to crack; small- to mid-size is more diverse, and he believes there's room for a foreign entrant.
Hence the new deal with Sumitomo, in which both parties say they will each provide ¥50 billion ($55 billion). Details are meant to be worked out by the end of this year.