MPGA, the real estate private equity firm managing $10 billion of assets, is making a Teutonic shift in the Asian property fund sector, where it is raising capital from German institutional investors for a ‘spezialfonds’ vehicle.
The firm’s Asian spezialfonds – meaning special fund – is heading for a tentative first close by mid-year as it advances toward a target of $500 million, according to John Saunders, Asia chief executive of MGPA. “It has been quite a pleasant surprise in terms of the amount of interest.”
Launched last September, the spezialfonds will invest in property in established Asian markets including Hong Kong, Singapore, Malaysia, South Korea, Japan and Taiwan, with a targeted internal rate of return (IRR) of 10-12%.
It will be regulated under German investment law, which has a heavily regulated framework for spezialfonds – a fund class that is exclusively available to the country’s domestic institutional investors.
Saunders attributes German interest in MPGA’s spezialfonds to the fact that it provides investors with exposure outside of the eurozone and in Asia’s currencies and growth prospects, via a strictly controlled fund structure.
MGPA is still investing in Asia through its $3.89 billion Asia Fund III, which closed in 2008. It has a different focus from the spezialfonds, targeting opportunistic property deals in the region.
While Fund III’s investments typically entail a buy-fix-sell process, with a target IRR of 20%, spezialfonds deals are more centred on deriving a steady, fixed-income type of revenue stream though rental and management income.
As a result of relatively high valuations of property assets last year, few investments were made from Fund III, although a recent softening of the regional marketplace is now providing attractive opportunities, particularly in China and Japan, says Saunders.
“We turned down a huge number of deals in 2011,” he says, “but I’m glad we waited because pricing has turned more in the buyers’ favour.