COLI, ICBC JV fund attracts initial $230m

The all-Chinese joint venture has raised almost half of the $500 million targeted for its second residential development fund, Harmony China Real Estate Fund II.

A joint venture between China state-owned property company China Overseas Land and Investment (COLI) and Industrial and Commercial Bank of China (ICBC), one of China’s ‘big four’ banks, has taken its second residential development fund to market.

The two general partners have raised the first $230 million of a planned $500 million for the Harmony China Real Estate Fund II, the successor fund to their Harmony China Real Estate Fund, which was closed on $286 million in 2010.

The first fund evidently has impressed enough to entice Dutch pension fund investor Algemene Pensioen Groep (APG) to re-up for the second fund with a $150 million equity commitment, considerably more than the $80 million injected into the first fund. In addition, ICBC and COLI have each kicked in $40 million of equity, bringing the fund to its current total.

In an announcement, ICBC and COLI said: “Harmony II follows on the success of Harmony China Real Estate Fund, which was formed in March 2010 and is now fully invested across three property development projects in Xi’an, Quingdao and Shenyang in the People’s Republic of China.”

PERE featured APG’s Asia head of non-listed real estate, Daan van Aert, in the February 2011 issue, following the group’s commitment to the first Harmony fund. In that interview, van Aert explained how the pension fund investor was keen to develop long-term relationships with select investment and operational partners, particularly via club structures.

While Harmony II is structured as a limited partnership, it is unlikely to have multitudes of investors like some traditional private equity real estate funds. Furthermore, its co-sponsorship with one of China’s largest property businesses, COLI, which has its own development arm, fits with APG’s appetite of teaming with operators or developers in its partnerships.

In the interview, van Aert said: “We are trying to set up partnerships with the strongest parties in the real estate business. That enables us to focus substantial amounts of capital for the long term as well as obtain favourable terms and conditions. The structures we favour typically involve a combination of a dedicated manager, say an operator or developer, together with two or three like-minded investors.”

Jones Lang LaSalle and DTZ are understood to be advising the joint venture in its capital-raising
efforts. Baker & McKenzie acted as fund formation advisors.