BPEA Real Estate, the real estate arm of Baring Private Equity Asia, is setting up an outpost in Australia to gain access to opportunities arising from tightening curbs on property lending in the country.
The firm has appointed Paul Gately as managing director and head of asset management. Gately will be working closely with Mark Fogle, the firm’s head of real estate, to build a team in Australia. To that effect, the firm is also planning to set up a Sydney office, which will be Baring Private Equity Asia’s first outpost in the country across its private equity and real estate businesses.
Gately was previously a long-serving executive in the real estate business of Hong Kong-based CLSA Capital Partners, having joined the firm in 2010. He has served as the firm’s regional head of asset management as well as head of Australia. His departure follows the high-profile exit of chief executive John Pattar last May, which fueled questions about the future viability of CLSA’s Fudo Capital fund series. In fact, as PERE reported back in 2014, Gately was one of the key persons identified for the fund series alongside four others, including Pattar.
At BPEA, meanwhile, Gately will be helping the firm identify potential investment opportunities for its second real estate fund. BPEA Real Estate Fund II, which closed on $1 billion last August, is a pan-Asia opportunistic fund.
BPEA has until not invested in Australia from Fund I or II but the firm is now looking to bet on the changing market dynamics in the country. While BPEA Real Estate Fund II does not have set parameters for geographic allocations, PERE understands the firm sees potential to have a 10 percent or more weighting to Australia.
Investment opportunities include Sydney’s housing market, which is expected to continue a downward trend over the next 12 months before bottoming out, according to a JLL research report published in November,. The downturn has resulted in sales volumes for Sydney houses and apartments declining by 13.5 percent and 19.7 percent, respectively. Meanwhile, for the rental housing market, slowing rents have led to yields declining to 2.9 percent, the report showed.
“The residential market is correcting in both Sydney and Melbourne, which is putting pressure on mid-tier developers, including Chinese developers who’ve acquired land. Both these groups will seek lending and that is one opportunity for us,” Fogle told PERE. “Around one-third of our portfolio is invested in debt. We could potentially lend to them, acquire assets from them, or establish JVs on a lower cost basis.”