DLJ, Foresight JV exits to RMB fund

A China focused partnership between the New York-based private equity real estate firm and Shanghai-based real estate asset management company Foresight Investment has made its first exit - to a Renminbi denominated fund.

New York-based private equity real estate firm DLJ Real Estate Capital Partners has made the first exit from its joint venture with Foresight Investment (Shanghai), selling a Shanghai industrial complex to an RMB fund.

The deal marked one of China’s first real estate sales from a foreign fund to an RMB-denominated private equity fund, according to a DLJ statement.

The property, called Shennan, is a 225,000 square-foot complex that has six industrial buildings ranging from three stories to eight stories in height. The property, close to central Shanghai, has a 95 percent occupancy rate.

DLJ and Foresight originally invested in Shennan in 2007 to develop the site, and construction was completed in 2008, according to the statement. Aside from Shennan, the DLJ-Foresight sino-foreign joint venture made three other real estate investments around the same time: two in Shanghai and one in Shenyang.

Although the firm behind the RMB fund did not want to be named, managing director and chief executive of DLJ’s greater China operations, John Lien, said the fund has a shareholder background originating overseas, but is now entirely locally set up and managed.

Lien declined to comment on either the size of or the returns from this exit, but did say that this exit represented a “very good return” for DLJ’s investors. PERE understands the deal size to be approximately RMB 200 million (€25 million; $33 million).

Lien added that this exit comes out of DLJ’s Real Estate Capital Partners III, which has already made “many exits”. Across all its funds, DLJ has also made just less than 10 exits from China.

Lien predicted foreign funds’ exits to both RMB funds and Chinese insurance companies will slowly increase as the RMB market becomes more institutionalized. Just five years ago, neither was particularly active in the real estate market.

“When we were underwriting these deals, we never thought that the exit could come from RMB capital,” he said. With China’s local institutional investor base increasing, the options are increasing for real estate exits.

“For example, where there used to be maybe two buyers [for an asset], there are now five,” Lien explained. In the end, this will give foreign firms trying to exit Chinese real estate more bargaining power, he added.