Having closed its Fudo Capital II fund in December, CLSA Capital Partners has already started putting the money to work and has bought a A$77 million ($71.4 million) office block in Sydney's financial district.

We asked John Pattar, who has run CLSA Capital Partners' property operation since its inception in July 2004, about his plans for the new fund and where he sees opportunities in property investment in Asia.

The new fund -- whose predecessor won AsianInvestor's 2006 fund launch of the year award -- raised $815 million in commitments from over 20 investors in Europe and North America, beating the target of $750 million. It will undertake opportunistic Asia-Pacific real estate deals, focusing on Australia, China, Hong Kong, Japan, Singapore, South Korea and Taiwan. $25-$50 million of Fudo equity buys a $100-$120 million building.

Pattar's speciality is opportunistic property deals. That means he'll take a 'B' grade property and tart it up, improving the internal accommodation. You know, the sort of thing that makes office life a joy: a chandelier in the lobby and modern, 'lifestyle' toilets. Having brought a property that's frayed at the edges up to a 'B+' standard, he will then rent out the building with 85-90% occupancy, at which point the fund can exit by selling the building.

Hong Kong is over-priced at present, says Pattar, but an opportunistic 20% return is feasible in Beijing, Shanghai and Taipei. He finds Southeast Asian property less attractive and says exits are tricky there. Who will ultimately buy the assets from him? North Asia, however, offers more market transparency and liquidity.

The new Fudo fund has an 18-20% target return and an eight-year life with two one-year extensions. To achieve that return, its preferred location at present is in Japan.

"Cap rates in secondary locations are 8-9%, and in central Tokyo 5.5-6%, whereas 12 months ago they were 2-3%" says Pattar. "Reit [real estate investment trust] business has dried up in Tokyo, because they over-leveraged in order to juice up their returns. Japanese property markets are not distressed, but certain sellers are. Outside Tokyo there is more distress, but CLSA is not really interested in properties outside the capital."

CLSA Capital Partners is the private-equity arm of Hong Kong-based equity brokerage and investment group CLSA Asia-Pacific Markets.