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ADIC goes ahead with Chinese multifamily bet amid covid-19 – Exclusive

The sovereign wealth fund finalized a $150m commitment to the sector after entering into discussions at the end of last year.

While many institutions have hit pause on their real estate investment activities due to the coronavirus pandemic, Abu Dhabi Investment Council has proceeded with an investment close to $150 million in a Chinese multifamily vehicle.

See all PERE’s coverage of coronavirus and its impact here.

The sovereign wealth fund’s capital outlay is part of an initial $230 million equity commitment to a dedicated vehicle under Chinese multifamily platform Funlive, according to three sources close to the situation.

China SCE Group, the Chinese developer and parent company of Funlive, and US-headquartered investment manager Proprium Capital Partners are the other two investors in the fund. While ADIC has committed close to 65 percent of capital in the vehicle, PERE understands that China SCE and Proprium account for around 20 percent and 15 percent in the fund, respectively.

The investors have the option of making follow-on commitments to the vehicle, which could bring the total equity to approximately $500 million.

PERE can also reveal that ADIC has been a long-time investor in Proprium and made its investment through a separate account with the manager, according to two sources. Separately, Proprium made its own investment in the vehicle with capital from one of its commingled funds.

This is ADIC’s first investment in a dedicated vehicle to invest in multifamily in China, according to one of the three sources. The investors entered discussions in the fourth quarter of last year and all the commitments were officially finalized this month.

Funlive, ADIC, Proprium and China SCE all declined to comment on the transaction.

“A lot of investors have now shut down the majority of their investments, especially the ones in the Middle East after the oil crisis and the covid-19 outbreak,” said a source close to the situation. However, ADIC got the internal approval for the investment before the global outbreak, the source told PERE. The sovereign wealth fund did not respond to questions about its real estate investment plans going forward.

On behalf of the vehicle, which has a fundraising goal of $500 million, Funlive will invest in greenfield multifamily development projects in China. Targeting opportunistic returns, the firm hopes to deploy the existing capital over four to six projects in the next 24 months. It is understood that the vehicle has not been seeded with any assets.

Led by Keith Chan, former co-head of China at Macquarie Capital, Funlive develops, invests and manages multifamily real estate projects in China. Founded in 2018, the platform is backed by Hong Kong-listed Chinese developer China SCE Group.

“The fundamentals of multifamily real estate are good in China,” said a real estate industry source, noting rising consumption, growing intercity travel and the willingness by young professionals to spend more on higher-quality living. He added that it will be a year or two before the vehicle’s development projects will be completed and therefore, they will not face leasing pressure during the pandemic.

The source also told PERE that most institutional investors have exposure in multifamily outside of China and it is a “very well-understood” sector. “Good institutional multifamily projects in China are in undersupply,” noted the source. In China, most developers have yet to adopt a long-term view in multifamily, as developing and managing assets in the sector is capital-intensive and often requires a long-term hold. Most of the multifamily investors in China currently engage in master lease programs instead of acquiring the assets themselves, the source explained.

With a 4 percent allocation target in alternative investment, ADIC has built up a portfolio across different property sectors in Asia-Pacific. In 2017, the sovereign wealth fund placed around S$125 million ($88 million; €80 million) in a separate account with UBS to invest in office, pharmaceutical and high-tech developments or redevelopments in Singapore. Before that, the investor also invested in multifamily in Australia via a separate account with UBS in 2014. Apart from UBS, ADIC also has invested in the country’s logistics sector, committing $250 million and $150 million in two partnerships with Goodman in 2012 and 2014, respectively, according to PERE data.