Declining deals in Asia

Deals are off by up to 18 percent across the whole of Asia. Things are not expected to get any better in the immediate future.

It will come as little surprise that markets such as the US and Europe have seen a dramatic drop-off in the number of deals taking place this past year; by up to 77 percent in some cases.

That story however is also being felt in Asia, as tightened credit markets are making their impact felt globally. According to the latest research from Real Capital Analytics, deals in Asia Pacific were down 18 percent in the year to August – and off by up to 74 percent in Australia and New Zealand.

East Asia, including China, was also affected with the volume of commercial property sales down 15 percent. South East Asia was down 10 percent in the same period. Japan and India were the only ones to buck the weakening trend.

They will not be so lucky next time. According to RCA data, deal flow is forecast to get worse in the third quarter of 2008 with all Asia countries set to report negative growth in property transactions over the previous 12 months. The region as a whole is expected to report a 68 percent drop in commercial real estate deals – against 39 percent in Europe and the Middle East and 79 percent in the Americas region.

Even India, where growth in the year to August led to a 39 percent increase in the volume of commercial property sales over the previous 12 months, will still a dramatic decline in deal flow in the third quarter – with RCA estimating that transactions will be down 71 percent compared to the same period a year earlier.

“Property prices are weakening in most parts of the globe. Early on, investors flocked to Asia, thinking it might be immune to the credit crunch and driving property yields lower,” said the report. “However cap rates on recent transactions are now up 25 basis points.” Some of the decline in China has been attributed to the government's attempts to slow speculation in the real estate market and prevent land banking. However, the lack of credit has played a major role in preventing deals from taking place across much of the region.

In India, private equity real estate firm, Red Fort Capital, told PERE it had seen a jump in the number of developers needing access to capital. The New Delhi-based firm it was now receiving 50 percent more interest from developers interested in closing equity stake deals with private equity real estate than in previous months and years. David Edwards, Asia-Pacific director for LaSalle Investment Management, added that developers were one area where the credit crunch was hitting home in Asia. The firm, which closed its latest Asian real estate vehicle on $3 billion in August, told Reuters it was now targeting landlords (and their real estate) who had over-extended themselves and were now being squeezed by a lack of credit.

Arcapita snaps up ex-Lehman exec
The management team of Lehman Brothers' private equity real estate group, Lehman Brothers Real Estate, may be considering a management buy-out of the group, but it hasn't prevented former senior vice president of its Asia operations, Blake Olafson, from joining another team. The industry veteran has joined the Bahrain investment bank Arcapita as director to lead its property team in Asia.

Colony exec to set up on own
Grant Kelley, chief executive of Colony Capital's Asia Pacific operations, has left the firm, reportedly to set up his own fund. A representative from Colony's Hong Kong office confirmed the departure to PERE. Kelley oversaw the firm's strategic planning, acquisitions and asset management activities in Asia, and helped close the $1 billion Raffles hotels deal.

Merrill eyes Japan and China
The soon-to-be Bank of America-owned investment bank has closed its latest real estate opportunity vehicle, the Merrill Lynch Asian Real Estate Opportunity Fund, on $2.7 billion. It is Merril Lynch's first Asia-dedicated fund and will focus on Japan, China, South Korean and India, with a secondary focus in Australia and Southeast Asia.

Winnington goes high-rise
Hong Kong-based Winnington Capital has made a RMB2 billion ($272 million; €200 million) investment in the development company, Rightchina, which is building a high-rise property in Chongqing. The deal involves a 25 percent stake in Rightchina for $136 million, and another 25 percent stake in a call option valued at $136 million. It was made from Winnington's $1.2 billion Trophy Property Fund launched in April.

Lin resigns from Capmark
Capmark Financial's Asia chief executive Steven Lin resigned from his post last month, according to a US Securities and Exchange Commission regulatory filing. Lin, who was based in Tokyo, was responsible for all of Capmark's real estate activities in Asia, including its value-add and opportunistic fund investments, and was a member of the executive and investment committees.

Constructing in China
The Abu Dhabi Investment House is partnering with Chinese construction firm, Shanghai Construction (Asia) Co., to target $6 billion of real estate developments across China. The 50-50 joint venture will acquire up to 16 real estate projects in the country. ADIH is also planning a $1.5 billion private equity fund to invest in real estate and manufacturing in China.

GIC looks to emerging markets
The Government of Singapore Investment Corporation is to focus on the emerging markets and private equity after sustaining big losses on the stakes it purchased in banking giants, UBS and Citi. The firm said it was looking for more secure longer- term investment performance. GIC's real estate arm, GIC Real Estate, has invested taken a minority stake in Mexican developer, Mexico Retail Properties.