Asia continues to lag other regions for integrating ESG principles with investing; better data and stronger regulatory requirements will help institutional investors, market observers say.
The MGPA Fund III consists of two regionally based private equity real estate portfolios: the MGPA Asia Fund III and the MGPA Europe Fund III, which will invest in the regions they are named after.
Combined, the funds received commitments from more than 65 investors, including a substantial level of new money from existing investors based throughout North America, Australia, Europe and the Middle East. MGPA has attracted a broad range of investors including corporate and public pension funds, insurance companies, foundations and endowments looking for exposure in the Asian and European real estate markets.
MGPA looks for inefficiencies and dislocations within the market where it can bring its asset and development management skills to improve the valuations of its investments. The firm finds opportunities in all cycles of the market and says the current uncertainty in the capital markets provides excellent opportunities.
ôWe are currently witnessing less competition for deals, especially where high levels of leverage and financial engineering were driving certain buyers,ö says MGPA chairman and CEO Jim Quille. ôUnless you can create real value through physically improving, developing or active asset management of real estate today, opportunities are less obvious.ö
The MGPA Asia Fund III has raised $3.9 billion, resulting in a potential buying power of $15.6 billion including leverage. The fund has already committed equity of $2.2 billion to investments in Singapore, Japan, China and Thailand in the office, retail, residential, hotel and logistics sectors. Half of these commitments are to Singapore investments.
The fund is also considering opportunities in South Korea, Malaysia, Taiwan and Australia with a remit to invest across Asia.
ôAcross Asia, the first thing to note is the fundamentals are still good. Asia is the engine for global economic growth, that hasnÆt changed,ö says Simon Treacy, CEO of MGPA Asia Investments. ôThe medium- to long-term outlook for the region is very strong, driven by China.ö
The opportunities are particularly strong in the office market in key Asian cities, especially from the financial services sector, he says.
ôEven if they are being more cautious due to some layoffs, overall net-net, there is really growth in that market,ö Treacy says. ôTo take an example, the Singapore wealth management sector is just exploding with growth and therefore we see them as very strong candidates for multi-billion dollar office developments in the new office area of the Marina Bay.ö
MGPA also sees many opportunities in Japan, particularly in Tokyo.
ôIn Japan, if you go back a year ago, there was too much money chasing too few deals whereas today, itÆs a buyersÆ market,ö Treacy says. ôCompetitors relied on very high levels of leverage and they have just evaporated from the market and that has had an impact on pricing. Pricing is now coming to us at levels that are more reasonable than what we saw over the last 18 months.ö
MGPAÆs long track record in Asia, with a presence of more than 15 years, has helped it achieve its fundraising goals over the past several months. The firm has among the largest network of offices in the region and has an experienced team on-the-ground.
ôLenders in the key markets know who we are and they are more selective with who they lend to,ö Treacy says. ôThey first look at the general partner, the fund manager, and then they look at the quality of the property. They will be very selective but will hang on to key relationships.ö
MGPA is not in any rush to commit the rest of its latest Asian fund, noting that time is on its side.
ôWe are fortunate to have a war chest of $15 billion to invest in Asia, Treacy says. ôWe think the worst is not yet over and the best deals are yet to come. There is no rush, but we are in a position to strike when opportunities come up.ö
The biggest risk MGPA faces is being impatient and buying too quickly.
ôThe market will get worse before it gets better. More stress and distress will come out,ö Treacy says. ôWe believe pricing will be more favourable for us and we will see a lot of opportunities over the next 18 months.ö
The other risk is overestimating the time to resell the properties in the future. ôWe probably have to be more careful when we forecast how long we hold investments,ö Treacy says, noting that the firm usually holds on to its investments for three to six years.
Meanwhile, the MGPA Europe Fund III has raised $1.3 billion, resulting in a potential buying power of $5.2 billion including leverage. The fund has already committed $161 million to investments in the residential sector in Wroclaw in Poland and a strategic development site in Athens, Greece. The fund has a mandate to invest in the 27 states of the European Union together with Switzerland and Norway.
ôIn an environment of falling prices but with occupational markets remaining relatively robust, the investment landscape is particularly favourable,ö says Alex Jeffrey, CEO of MGPA Europe. ôWe will be focusing on opportunities arising from dislocation and distress in Western Europe as well as continuing growth and convergence in central and eastern Europeö.
MGPA, which was formed in 2004 as a result of a joint venture with the Macquarie Group, has recently changed its name from Macquarie Global Property Advisors. Since 2004, MGPA has been an independently managed business and the management and day-to-day control of MGPA continues to remain with the existing management. Rebranding the company to MGPA serves to reinforce the independence of the company. Through its headquarters in Bermuda and network of offices throughout Europe and Asia, MGPA currently manages $11 billion in assets throughout these two regions.
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