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EXCLUSIVE: APG capital in China fund to be returned

The Dutch pension manager has agreed with Hong Kong’s TAN-EU Capital and SOCAM Development for its uncalled capital in the $400m SOTAN China Real Estate I fund to be returned after market conditions changed during the vehicle’s investment period.

TAN-EU Capital, the Hong Kong-based private equity real estate firm, and SOCAM Development, a sister company of the well-known Hong Kong developer Shui On Land, are to return uncalled capital to one the investors in their China-focused investment fund, PERE has learned.

The partners have agreed with APG Asset Management, one of Europe’s largest institutional investors, to return commitments totalling approximately $57 million from the SOTAN China Real Estate I fund, a vehicle raised in 2011 which attracted $400 million of equity commitments. Half the fund’s capital came from APG and Achmea, another Dutch institutional investor, and the other half from SOCAM. The capital was to be deployed on a dollar for dollar basis with the investments managed jointly by TAN-EU and SOCAM.

Capital from SOTAN was deployed into two transactions, representing 52 percent of the fund, before its initial investment period expired. The investments comprised a $40 million outlay in a mixed-use development in Wuqing, Tianjin, and a majority stake in a residential-led development in Jiangning, Nanjing, for about $160 million. Both transactions included debt.

The vehicle’s current investment period is slated to finish by the end of February. APG and Achmea had extended the investment period once. But while APG is understood to be happy with the club’s two investments, a PERE source familiar with the situation said the TAN-EU/SOCAM joint venture had offered to return APG’s remaining capital as market conditions had changed since SOTAN was raised. As a result, they opted to return the capital rather than continue to source investments that would not meet its original strategy.

The capital return is understood to have no bearing on APG’s appetite for Chinese private real estate investments, however, and the investor is thought to be exploring various other strategies currently. It’s most recent investment in China was a $650 million commitment to e-Shang, a Shanghai-based logistics developer and owner.

Achmea, on the other hand, is understood to have remained committed to SOTAN and for its remaining capital to be deployed before the end of the investment period. And, it is understood that one final investment is underway and should close in time.

At present, the six-year vehicle is believed to be performing in line with its original return target IRR of between 18 percent and 20 percent. 

TAN-EU Capital, which was launched by Rachel Renucci-Tan in 2009, made headlines in 2013 for its positive role in brokering a resolution for the troubled Trophy Property Development Fund, a development fund focused on townships developed by Shui On Land. The fund attracted more than $1 billion of equity from about 145 investors in 2008, but ran into hard times after developments overran, further capital was needed and its manager, Hong Kong-based Winnington Capital, fell out with Shui On Land prompting concerns among its investors.

Now restructured and under new management, that fund is expected to return a significant part of the value that was previously written down. Beyond helping to broker its resolution, TAN-EU continues to advise Shui On Land on its commitment to the fund.