The financial world may be full of employment jitters these days, but there's one group that probably doesn't have to worry about job security at the moment: private equity real estate professionals in Asia.
The big story in the summer of 2008 – besides the Olympic Games in Beijing – has been the slew of new offices, new hires and new fund closes in Asia for private equity real estate firms. As Western-focused real estate funds brace their LPs for rough times ahead, Asia-focused funds have shown an exuberance and confidence that is reflected in their increased hiring and expansion.
The most noteworthy office opening of the summer was The Blackstone Group's. When the firm set up its first office in mainland China in July, the direction signaled by their choice of leader for the new office gave some insight into the priorities the firm will have in greater China.
Blackstone has appointed Shan Fu, formerly of Chinese property developer Beijing Mainstreets Investment Group, as chief representative of the Beijing office. Before working with Mainstreets, Fu worked at several state administrative bodies including China's National Development and Reform Commission, the State Economic and Trade Commission of China, the Office of Economic and Trade in State Council of China and the Office of Production of the State Council of China.
The fact that Fu comes from both a government and development background is an indication of what Western firms are looking for in China. In fact, in a country where government support and contacts is essential for success, and where new developments are the best way forward for foreign firms, Fu's résumé may be the perfect combination. He knows development, and he knows people in government that can make those developments happen.
Lu's hire wasn't the only one at Blackstone with this history. Last year, the firm hired Antony Leung, former Hong Kong financial secretary, for its new office in Hong Kong to head the group's business in Greater China. More appointments in Asia for Blackstone seem likely to follow. In an interview with PERE in March, president and chief operating officer Hamilton James said the firm was busy staffing up the Hong Kong office with real estate professionals. At the same time, he said the firm was adding professionals in Tokyo and Mumbai. Speaking of Asia, he told PERE: “Those markets will be a much larger portion of our real estate investing activity than they have been historically.”
It isn't just China where this hiring formula was used this summer. In August Pacific Star Group, the Singapore real estate investor, hired former Korean pension head Kim Ho-Shik to sit on its advisory board and guide the firm as it enters the Korean market. The appointment comes shortly after the firm opened its office in Seoul which is headed by Kim Dai-young, who was formerly the Korean government's vice minister for construction.
Again, the hire demonstrated an ideal mixture of development experience and government contacts. Other hires over the summer have included VinaCapital hiring David Henry to oversee site acquisitions for its Vietnam development fund, and Russell Investments hiring Martin Lamb to head its Asia Pacific property investments (see pg 23). Office openings have been just as common. Swiss alternatives manager Partners Group and global private equity firm CVC Capital Partners have launched offices in Beijing, while Apax Partners has revealed plans to establish an office in the Chinese capital as well.
Given the increase in demand for Asia exposure from LPs, it's not surprising to see firms rushing to set up a bigger presence there, both on the ground and in the corridors of power. CalPERS, for instance, is now considering a five-fold expansion of its investments in emerging market real estate – with China and India the main targets.
And why not, with data emerging this summer showing that emerging markets accounted for a quarter of all property sales during the first half of 2008, compared to just 10 percent a year earlier. And according to data collected by PERE magazine, the first half of 2008 saw funds target $30.4 billion (€20.6 billion) through dedicated Asia funds, compared to just $11.5 billion at mid-year 2007. By comparison, Europe-focused funds in market for the first half of 2008 totalled just $24.3 billion.
As firms rush to establish a presence in Asia to deploy these funds, a discernable pattern has emerged so far in their personnel decisions: find people with development experience and government connections. It will be interesting to see if this trend continues, or if priorities change over time.
SUN-Apollo buys stake in developer
SUN-Apollo Ventures, the India-based joint venture firm between Indian conglomerate the SUN Group and New York-based private equity real estate firm Apollo Real Estate Advisors, has invested Rs300 crore ($70 million; €44 million) for a minority stake in a special purpose vehicle launched by the Noida-based realty firm Amrapali group, India's Economic Times reported. The special purpose vehicle has been set up to develop several projects in the next two and half years including a 200-acre township in Jaipur and a 15-acre housing project in Noida. Amrapali group has already developed six urban residential colonies in the national capital region of Delhi. SUN-Apollo was formed two years ago when Apollo Real Estate teamed with the SUN Group, owned by the Delhi-based Khemka family.
Daiwa plans $4.5bn PE fund
Daiwa Securities Group plans to launch a ¥500 billion (€3 billion; $4.5 billion) private equity fund, chief executive Shigeharu Suzuki told Reuters. He said the geographical footprint of the fund had not been defined, but that it would invest up to ¥100 billion per deal. Daiwa already has a fund investing the group's own cash, Daiwa Securities SMBC Principal Investments, which is a joint venture between Daiwa Securities and Sumito Mitsui Financial Group. It has put ¥436 billion to work in private equity, real estate and debt investments. The new fund will operate separately and raise commitments from other investors. It is likely to be formed in three to four years time. Suzuki also said Daiwa wants to expand its real estate business to stabilize its revenue sources.
Tokyo overtakes London and NYC
Tokyo has overtaken London and New York as the most active office sales market in the world after property sales in Japan more than doubled during the past 12 months, a report from Real Capital Analytics has revealed. The Japanese capital was the seventh most active office market last year, according to RCA's global capital trends report, however increasing focus on real estate in emerging markets has helped catapult the city into the top spot. London comes in second, with New York third and Paris fourth. Japan saw office property sales rise 103 percent between the first half of 2007 and 2008, with $12.6 billion (€8.5 billion) in sales as of the end of June 2008.
GIH closes $75m shariah-compliant fund
Global Investment House, a Kuwait-based investment institution, has closed a $75.4 million (€50 million) shariah-compliant fund, Global MENA Ijarah Real Estate Fund. The fund has already invested 40 percent of its total after its first capital call, investing in two projects in Palm Jebel Ali in Dubai and two unnamed projects in Kuwait. The vehicle was launched in July 2007, setting a mission to provide development and acquisition financing for a diversified portfolio of real estate properties in the MENA region. GIH currently manages 38 investment funds. In July it launched Global GCC Real Estate Fund II, a $500 million (€318 million) vehicle focused on investments in the Gulf Cooperation Council (GCC) region. That fund was the Kuwait-based investment firm's second property vehicle targeting the GCC region.