They came from across a vast region. Some 130 real estate professionals from 18 different countries swapped stories and presented their viewpoints at PERE’s first PERE Forum: Asia in Hong Kong this week. And while the locations of potential real estate investments discussed may have been very different, in many ways the key themes were not.
One crucial factor kept coming up in many panel discussions and presentations: the importance of local partnerships. Whether it was finding the best-in-breed local developers to partner with or taking the time to establish friendly contacts with local authorities, it was clear that having an established, knowledgeable and well-liked presence on the ground is key for the success or failure of many Asian real estate ventures.
Pietro Doran, chairman of Korea's Doran Capital Partners, was particularly adamant on this point. During on onstage interview with PERE’s Dave Keating, Doran complained that as a real estate investor in Korea, he is constantly asked about Lone Star's legal troubles there, which recently involved a jail sentence of five years for the Texas firm’s Korean head for manipulating the stock price of a Korean company so it could buy it cheaply. The problem, Doran said, was not that Korea is inherently distrustful of foreign capital but that Lone Star had turned a potential minor problem into a major debacle by not taking the time to establish good relationships with the Korean government. Arguing that no one, including the Korean authorities, wanted the situation to escalate as much as it has, Doran said the Texas firm's missteps in presenting itself to the local culture was to blame.
Doran wasn't the only one to stress a detailed on-the-ground interaction with the local culture, government and businesses in a real estate transaction in Asia. In a breakaway session on Deepak Bagla, a director with 3i, also stressed the importance of understanding local customs and regulations when investing in this region. The session drove home the lesson that even a country-specific fund, for instance, needs to develop knowledge, relationships and government presence in the individual communities into which it is investing, which means working only out of the country's capital isn't an option. In India particularly, where each state can have vastly different regulations when it comes to real estate, connecting early and often with local governments can be critical.
Of course connections between investors are important as well, and one could see at the conference how quickly a small community is forming around this nascent area of private equity investment. As global private equity firms launch more and more Asia-dedicated real estate funds and local first-time funds spring up across the continent, these investors are starting to get to know each other quite well. PERE is looking forward to more opportunities in the future to facilitate this interaction.