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Chelsfield closes debut Asia value-add fund at $363m – Exclusive

The firm also raised an additional $516m in co-investment capital, more than half of which went to five pre-specified projects.

Hong Kong: a key market for Chelsfield Asia

Chelsfield Asia, a subsidiary of the London-headquartered real estate investment manager Chelsfield, has raised a total of $878.5 million for its first real estate fund and co-investments.

The firm closed its first pan-Asia value-add fund, Chelsfield Asia Fund I, at $362.5 million alongside a $150 million co-investment sidecar in May, according to Chelsfield. To date, the firm has also raised $366 million in additional co-investment capital. PERE understands that the latter pool of co-investment capital was for five pre-specified investments, while the $150 million sidecar will be designated for future transactions.

Apart from Chelsfield itself, PERE can reveal that there are six other investors in the fund including a US pension fund, two corporate investors from Hong Kong and the Middle East, a Hong Kong-based family office, a sovereign wealth fund and an international fund of funds.

The firm launched the vehicle with a $400 million target and held the first close on $121.5 million in July 2017. The US pension fund and the sovereign wealth fund joined in the final close, along with an existing investor making a follow-on commitment. It is understood that the firm only started the second round of fundraising in November 2019 after the capital from the first close was fully deployed.

The fund has deployed around 33 percent of the total $362.5 million fund commitments so far. The capital has been invested in five assets with a total gross asset value of $1.1 billion as of December 2019. Currently, the fund’s exposure is 66 percent to office and 34 percent to retail.

“As a first-time fund, it was helpful to have assembled a diversified portfolio after the first close which reflected our investment strategy. In a period of severe market volatility, global investors have to assess performance across all asset classes and in some cases may decide to adjust exposure and allocations,” said Nick Loup, group vice-chairman and chief executive officer at Chelsfield Asia. “The final close of our fund was an endorsement of our value-add strategy, the current portfolio and the potential of the target markets.”

PERE also understands that the firm has not made any new investments since November last year as it is taking a “wait-and-see attitude” amid the covid-19 outbreak.

With the ability to invest in Shanghai, Hong Kong, Singapore and Tokyo, the firm targets an internal rate of return of between 13 and 15 percent. Loup said it was too soon to predict the pandemic’s ultimate impact on returns. “For most of our assets, we are still in the early stage of the value-add process and I believe the primary Asian economies will start to come back in the next 12 to 18 months. We are not looking at exits in that period and so we have got plenty of time for our respected markets to return to a good economic cyclical phase.”

However, Loup remains positive about China and Hong Kong in the medium to long term, despite the social unrest in the latter market. “I think property is a long game, so you can look through issues as long as the fundamentals are strong and your investment thesis should remain intact,” he explained.

Loup also expects to see more development opportunities in the region, especially Japan. Although the country has one of the biggest office markets in the world, much of the stock is relatively old, which could lead to opportunities to re-develop some of these buildings, he said.