Global private equity firm Warburg Pincus has entered into a strategic partnership with RaycomReal Estate Development, a commercial and residential developer in China. The private equity group plans to invest $31 million (€26 million) in the company's current projects.
Many cities in China have experienced a property boom since the 1990s, when the Chinese government began allowing people to buy their own homes. Philip Mintz, a Hong Kong-based managing director with Warburg's Asian real estate team, says these market fundamentals and demographic shifts will create opportunities.
“We believe there will be decades of sustainable growth driven by Chinese citizens enthusiastically switching from current public housing to embrace commercial residential developments in urban areas,” Mintz notes.
There are a number of geographic areas in the country that are drawing Warburg's attention. “We are interested in all metropolitan areas in China with a significant population density coupled with an improving and expanding middle-class workforce, as well as those considered a bit smaller, such as Hanzhou and Shenzhen,” Mintz says.
Raycom, which is a part of Legend Holdings, a large Chinese technology and investment concern, develops office and residential space in cities throughout the country. One of its projects, Raycom InfoTech Park, is an R&D and business campus in the Zhongguancun neighborhood of Beijing, which has been called the “Silicon Valley of China.” The company is also currently working on a mid-priced residential complex called Olive City in northeast Beijing.
As the details of the strategic cooperation agreement are finalized, the private equity firm will review possible transactions on a deal-by-deal basis. The current investment came out of the group's last fund, Warburg Pincus Private Equity IX, which closed earlier this year on $8 billion and invests across asset classes.
It is not Warburg's first move into Chinese real estate. Earlier this year, the firm made a $65 million equity investment in Guangzhou R&F Properties, a real estate developer that focuses largely on mid-to-high-end and fully furnished apartments in Beijing and Guangzhou. The firm purchased approximately 25 percent of the company's stock when it was listed in Hong Kong this July. Development and brokerage companies have increasingly caught the eye of private equity firms looking to expand into Chinese real estate.
Mintz notes that Warburg Pincus is interested in other real estate opportunities in the region and says there is no dearth in deal flow. “Real estate in Asia is still highly fragmented and regional, with companies at very different stages of growth and infrastructure development, which makes the sector quite suitable for private equity investing,” he says. “There is an enormous supply of interesting projects to look at.”