Local managers lead the way on Asia property

The bulk of real estate fundraising and deals in Asia is now being done by asset managers based in the region rather than big global players.
Local managers lead the way on Asia property

The private equity real estate market in Asia is coming to be dominated by fund managers based in the region, a trend that points to the growth of the local industry, says research house Preqin.

Asia-based asset managers, raising capital for strategies focused on the region, represented 92% of 2016 fundraising for the year to the end of August, according to data released by the firm yesterday. They also account for the bulk of recent private real estate deal activity in the region; 17 of the top 20 deals concluded since 2015, including the three biggest, involved Asian managers.

As Asian managers – such as Alpha Investment Partners, ARA, Capitaland, Gaw Capital and Mapletree – have developed proven track records, they have attracted a growing proportion of capital from investors.

In the few years leading up to the 2008 financial crisis, most capital-raising was done by the big global players such as Blackstone and Morgan Stanley, with US and European investors the source of most of the money.

At the time, the PE market in Asia was less mature and did not boast many managers with two- or three-fund track records, said Andrew Moylan, head of real estate products at Preqin.

Growing maturity

But many of the biggest global players, particularly those linked to the investment banks, have scaled back and many more regional firms have built up a track record, he told AsianInvestor. “So now you’ve got players who are typically on their fourth fund, able to go to Europe and the US to raise capital, and from Asian institutions as well.”

Asian managers now have people on the ground in all the markets they invest in, he added. The regional industry “has matured to the extent that you have this range of established sophisticated managers operating in the market now”.

The big global names are still active though. Blackstone oversaw one of the largest Asian real estate deals involving a foreign fund manager in 2015, with the $854 million acquisition of L’Avenue, a mixed-use property in Shanghai.

There are currently 56 Asia-focused private real estate funds in the market, targeting a combined $18 billion, noted Preqin. This marks a drop in the number of funds but a rise in targeted capital compared to 12 months ago.

Allocations in Asia tend to be value-add – that is, property where further development is needed – and opportunistic plays rather than to core assets (well established, low-risk investments). Only seven core and core-plus vehicles have reached final close, raising a combined $2.6 billion in the 12 months to the end of August. Meanwhile, 23 opportunistic funds have secured $11 billion of investor capital, while eight value-added vehicles have raised $2.9 billion.

The higher proportion of development or opportunistic plays is a reflection of the Asian property market’s relative immaturity, but it also reflects a different attitude among investors when they look at the region, said Moylan.

India in the spotlight

In terms of geographies, while much of the attention has fallen on China in the last five years, India is now taking a sizeable piece of the pie. Preqin’s research shows that India-focused funds have secured 21% of all capital raised in 2016 so far, surpassing China-focused funds (9%) and the largest proportion secured since 2006.

Morever, India represents fully a quarter of transactions announced in Asia Pacific since the start of 2015, although Singapore accounts for the largest proportion (38%) of aggregate deal value for that period. This includes the notable $2.5 billion June acquisition of Asia Square Tower I.

Source of investment

Some of the money is coming from big European and US pension funds and insurance firms with globally diversified portfolios and the ability to due diligence on Asian managers.

“The Asian institutional market is becoming more willing to invest in real estate across the region,” said Moylan. “It’s not just sovereign funds; we see insurers becoming more active in Asia and also putting capital into the US and Europe. Asian pension funds are not as important, but it is a growing segment.”

Still, Asia-focused private real estate fund closings have not returned to the heights they hit in the few years prior to the global financial crisis, as figure 1 shows.

Figure 1: Primarily Asia-focused closed-end private real estate fundraising,
2006 - 2016 YTD (As at August 2016)
Year of final close No of funds closed Aggregate capital raised ($bn)
2006 40 19.4
2007 57 31.0
2008 58 31.1
2009 31 6.2
2010 39 12.3
2011 41 8.1
2012 45 8.9
2013 37 12.4
2014 29 10.6
2015 29 12.2
2016 YTD 13 5.9


Fees are always a contentious issue with institutional investors, but less so for real estate funds, said Moylan, where the standard fee structure tends to be 1.5% for management and 20% for performance.

“Institutional investors tend to be broadly happy with fees on their private equity real estate funds, which contrasts with some of the other alternative asset classes,” he noted. “On infrastructure, there’s been a lot of noise and complaints about the 2-and-20 structure not fitting with infrastructure, and hedge fund fees generally not being appropriate, but not in real estate.”

Fig. 2: Five Largest Asian Private Equity Real Estate Deals,
2015-2016 YTD (As at August 2016)
Asset Asset type Transaction type Buyer(s) Seller(s) Deal size (mn) Deal date
Asia Square Tower 1, Singapore Mixed use Single asset Qatar Investment Authority BlackRock $2,450 June 2016
Meguro Gajoen, Tokyo Mixed use Single asset China Investment Corporation, LaSalle Investment Management Unidentified JPY140,000 February 2015
Tokyo office Single asset Office Portfolio PAG Real Estate GE Japan Corporation $1,000 July 2015
InterContinental Hong Kong  Hotel Hotel Single asset Gaw Capital Partners Intercontinental Hotels UK Pension Plan  $938 July 2015
L'Avenue, Shanghai Mixed use Single asset Blackstone Group Unidentified $854 May 2015


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