China is an easy subject to write about, but a difficult country to invest in. It is a major world power that is full of potential, yet rife with conflict. It courts foreign direct investment from the West, and strikes an oil-field deal with Iran. Its economy is growing because of its ongoing market reforms, yet the ruling party recently unveiled a campaign to renew emphasis on its Marxist roots.
When it comes to real estate, only the most entrenched players venture beyond a handful of large cities in the East—and then only with the help and guidance of local partners on the ground. This dynamic has largely kept Western funds at bay, leaving plenty of investment opportunities for knowledgeable—but oftentimes cash-strapped—local firms.
Into the gulf come a number of Hong Kong- and Singapore-based developers. These large regional players have the brains and the brawn to make a lot of money in Chinese real estate. And given their market position and expertise, the groups—including Hutchinson Whampoa, Shui On, Shanghai Forte Land, Wharf Holdings and Keppel Land—often parlay their market position into deals and joint ventures with US and European firms.
With all the hype swirling around the Asian markets, some in the US and Europe could do well to study Capitaland's strategy.
All of these groups can provide important lessons for Western firms looking to enter the Asian market. One group in particular, Singapore's Capitaland, has been especially successful in its implementation of a diverse property strategy across the Asia-Pacific region.
The company, which is 43 percent owned by Temasek Holdings, an investment arm of the Government of Singapore, was founded in 2000 with the merger of Pidemco Land and Singapore-listed DBS Land. Now the largest property company in Southeast Asia, the firm pursues a number of private equity real estate and investment trust strategies in the property, hospitality and finance sectors; these include residential, retail and commercial vehicles, as well as specialized subsidiaries like Australand— which focuses on Capitaland's largest market, Australia—and the Ascot Group, a serviced residences group.
Capitaland's China strategy has been particularly impressive. Over the past ten years, the company has been able to penetrate the market, starting with the gateway cities of Shanghai and Beijing and, more recently, expanding to Guangzhou and Ningbo. The company has built 5,000 homes in the Middle Kingdom and has plans for around 6,000 more.
According to a Capitaland spokesperson, the firm is looking to expand its China footprint in the Yangtze Delta region. “The growth in this region, led by Shanghai, will play an important role in the overall growth of China's economy,” she says.
Capitaland has also seen the potential for retail outlets throughout Asia and has executed this strategy with its Capitaland Retail subsidiary, which owns and manages properties in China, Singapore, Malaysia and Japan—the firm currently has 16 malls throughout Singapore, making it a market leader.
In China, the firm has been involved with the Raffles City mall in Shanghai. Located along the Nanjing Road commercial belt in the Huang Pu District, the complex includes an office tower alongside the eight-story retail podium. But Capitaland is looking to expand its retail strategy throughout China via a joint venture with SZITIC; Capitaland will eventually own and manage 21 retail properties in provincial cities throughout the country—with US discounter Wal-Mart as the anchor tenant.
So far, the strategy seems to be paying off. Despite a cooling Chinese residential market being responsible for a 16 percent drop in Capitaland's fourth quarter profits, the company's 2005 earnings figures, released in February, show record-breaking profits. Much of this is thanks to the firm's diversity and the $1.5 billion sale of its hotel business last summer to Los Angeles-based private equity real estate firm Colony Capital. The high-profile sale included the famous Raffles Hotel in Singapore.
Outside of China, Capitaland is poised to be the first major entrant off the block in some of Asia's emerging markets. The company recently announced that it planned to continue to invest in emerging markets like Thailand, where the firm recently launched its third project, and Malaysia, where it is also stepping up its development work. Capitaland also recently announced its first joint ventures in India and Vietnam; the former is the residential portion of a mixed-use development in the Mumbai suburb of Ghatkopar, while the latter is an upper middle-class apartment project in Ho Chi Minh City.
With all the hype swirling around the Asian markets, some in the US and Europe could do well to study Capitaland's strategy in China and beyond.
ING buys Hong Kong office
ING Real Estate Investment Management recently acquired an office building in Hong Kong for HK$528 million ($68 million), a purchase made via its IP Property Fund Asia. The 25-story, 13,620-square meter building, located at 410 Kwun Tong Road in Eastern Kowloon, has retail space and parking, in addition to offices; the building's largest tenant is currently the Hong Kong government and is approximately 99 percent leased. “As we plan to make improvements to the building, we should be able to capture positive rent revisions,” noted Yeap Soon Ann, director of IP Real Estate Asset Management.
Kotak to raise $100m fund
Chennai, India-based Kotak Mahindra Investments plans to raise a $100 million (€84 million) private equity real estate fund, according to The Hindu newspaper. The Kotak India Real Estate Fund I already has estimated commitments of $60 million and plans to take a dual approach to real estate investing: at the project level, the fund will team up with local developers for work on individual transactions, in addition to making investments in realty development companies. The fund plans to focus on the retail, lodging, education and healthcare sectors.
Arab Bank, Saraya launch $250m vehicle
Jordan-based Saraya Holdings and Arab Bank subsidiary Atlas Investment Group have launched the Saraya Real Estate Middle East and North Africa Fund, a $250 million (€210 million) closedend fund to invest in the Middle East and North Africa. The two groups are providing seed capital of $50 million and selling shares valued at $100,000 each to investors. The vehicle plans to focus on real estate and tourism investments in the Gulf Cooperation Council states and the Levant area of the Middle East. Saraya Real Estate Development Group will act as the property advisor to the fund, while Atlas will act as the investment manager.
CEO: Indian fund activity to increase
According to Renuka Ramnath, chief executive officer of Mumbai-based ICICI Venture Fund Management, investment in India by private equity real estate funds is expected to grow from $3 billion (€2.5 billion) to $6 billion over the next two years. Talking to the Fourth India Debt Market Conference in Mumbai last month, Ramnath added that opacity in asset ownership and liability will continue to stymie the growth of the private equity real estate market in the corporate sector. Last year, ICICI formed a joint venture with New York-based property developer Tishman Speyer to invest more the $600 million in Indian real estate, largely via land purchased from the government in cities like Mumbai, Calcutta and Bangalore.
ING buys Hong Kong office
ING Real Estate Investment Management recently acquired an office building in Hong Kong for HK$528 million ($68 million), a purchase made via its IP Property Fund Asia. The 25-story, 13,620-square meter building, located at 410 Kwun Tong Road in Eastern Kowloon, has retail space and parking, in addition to offices; the building's largest tenant is currently the Hong Kong government and is approximately 99 percent leased. “As we plan to make improvements to the building, we should be able to capture positive rent revisions,” noted Yeap Soon Ann, director of IP Real Estate Asset Management.
Kotak to raise $100m fund
Chennai, India-based Kotak Mahindra Investments plans to raise a $100 million (€84 million) private equity real estate fund, according to The Hindu newspaper. The Kotak India Real Estate Fund I already has estimated commitments of $60 million and plans to take a dual approach to real estate investing: at the project level, the fund will team up with local developers for work on individual transactions, in addition to making investments in realty development companies. The fund plans to focus on the retail, lodging, education and healthcare sectors.
Arab Bank, Saraya launch $250m vehicle
Jordan-based Saraya Holdings and Arab Bank subsidiary Atlas Investment Group have launched the Saraya Real Estate Middle East and North Africa Fund, a $250 million (€210 million) closedend fund to invest in the Middle East and North Africa. The two groups are providing seed capital of $50 million and selling shares valued at $100,000 each to investors. The vehicle plans to focus on real estate and tourism investments in the Gulf Cooperation Council states and the Levant area of the Middle East. Saraya Real Estate Development Group will act as the property advisor to the fund, while Atlas will act as the investment manager.
CEO: Indian fund activity to increase
According to Renuka Ramnath, chief executive officer of Mumbai-based ICICI Venture Fund Management, investment in India by private equity real estate funds is expected to grow from $3 billion (€2.5 billion) to $6 billion over the next two years. Talking to the Fourth India Debt Market Conference in Mumbai last month, Ramnath added that opacity in asset ownership and liability will continue to stymie the growth of the private equity real estate market in the corporate sector. Last year, ICICI formed a joint venture with New York-based property developer Tishman Speyer to invest more the $600 million in Indian real estate, largely via land purchased from the government in cities like Mumbai, Calcutta and Bangalore.
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