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Funlive on staying true to multifamily values

Chinese investment manager Funlive is flying the flag for long-term residential investment, says chief executive Keith Chan.

This article is sponsored by Funlive

What were the key events for your firm last year?

Keith Chan

We were very active in the China multifamily space, growing our portfolio to a total of 25,000 rooms all over China, across nearly 50 projects. Some of them are at the development stage, while some are in operation already and we have occupancy above 90 percent.

A landmark was establishing an investment platform together with investment manager Proprium Capital Partners and a Middle Eastern sovereign wealth fund. We have started deploying the platform’s initial $230 million of equity capital into projects in top tier cities.

How has the operating environment been?

The entire world was impacted by covid, but China and our sector were among the first to recover. Back in February and March, as a part of the Chinese government’s immediate measures to contain the pandemic, local authorities actually refused to let operators pick up leases from new customers.

A lot of people also stayed in their home towns rather than going back to top tier cities for work. Our portfolio occupancy dropped to around 80 percent as a result.

After April, when the Chinese government had more or less contained the pandemic, people started returning to cities for work and the leasing demands picked up very quickly. Multifamily is traditionally a defensive and anti-cyclical sector and proved to be so last year.

How did you overcome the challenges you faced?

We have had to deal with certain misconceptions by media and capital markets about the rental apartment sector. Most rental residential businesses in China work on a master lease/rental arbitrage model, where they take a long lease on a building, renovate it and then lease out individual apartments, all without owning the property.

There is nothing wrong with the master lease model itself, but the sector has been portrayed in a negative light as over 80 rental apartment operators have gone bankrupt in China. This is mostly a result of operators being too aggressive in their business expansions – often paying more for the master lease than they can rent out to tenants for.

Funlive’s business model is different; we develop, own and manage our assets. We put considerable effort into educating investors about this. Covid travel restrictions mean we cannot meet investors face to face, so we have made a real effort with online communication and digital tours of our assets.

Who or what is mainly responsible for your success?

The support of our sponsor, China SCE, is very important, because it is a listed developer with over 100 billion yuan ($15 billion; €12 billion) of contracted sales and land acquisition teams all around China, who are in talks with local governments to source sites for us and to negotiate zoning for multifamily. That land sourcing knowledge from China SCE and our team is an important part of our success. Good relationships with the governments of our target cities are extremely important.

Being a specialist is important, too; we have a 110 percent focus on our sector, which is on the rise; we are riding a wave of institutionalization in China multifamily residential.

It is very much like the logistics sector was five or 10 years ago. However, I believe multifamily has even more potential than logistics and, in five years, it will be larger than logistics is today.