Gaw Capital on the power of platform investing

This article is sponsored by Gaw Capital Partners.

Despite the difficult economic climate, Gaw Capital Partners raised $2.5 billion in 2020 and sees plenty of places to put that money to work. As platform investing grows in importance, this is an eventful time for Asian real estate.

Gaw Capital has continued raising capital despite the pandemic. How has fundraising for real estate changed?

Global fundraising definitely took a hit over the pandemic. It was harder because of limited in-person interaction and massive shutdowns, not to mention how many traditional assets (retail, hospitality and such) experienced significant difficulties. On the other hand, the pandemic also accelerated some mega-trends in society related to lifestyle and behavioral changes.

For example, an interesting trend in the post-covid-19 world is internet data centers (IDC), with internet traffic expected to grow exponentially.

Asia-Pacific markets present good opportunities for our expertise, especially given the demand-supply imbalance.

At the end of 2019, we completed fundraising for our first IDC platform in the APAC region, with a total equity of $1.3 billion. In fact, we have already gone into second-stage planning on a second IDC platform.

Logistics has been a hot sector and the pandemic has accelerated demand dynamics, as well as driven innovation for different kinds of logistics. There is increased need for central urban locations to reduce the cost of last-mile delivery. Online shopping has proliferated and demand for logistics continues to be strong.

How should fund managers approach investors in a time of so much uncertainty?

It would be harder for a new manager to fundraise in this environment. For institutional investors, establishing a relationship of trust takes a number of years; without the ability to meet in person during the pandemic, it is harder to establish that initial rapport. Also, through ongoing discussions with our investor base, most of them focused on re-engaging with existing managers with whom they have already established trust and partnership.

Why is platform investing growing in importance?

Part of being a successful manager is being creative and evolving along with the ever-changing environment, which for us means constantly thinking about the alternative use of space, reflecting the changing needs of the users. Our long-term goal is to create an ecosystem that links opportunities together with respect to the use of space.

“Changes are coming much faster than before. The way to keep up is through platform investing”

It is also important to find a link to transportation convenience or a new transport hub – such as hubs where Hong Kong is linked up to the Greater Bay Area and the surrounding cities. Currently, in real estate, location is one thing, but because of modern transportation links, the investable region has expended far beyond the city limits.

Investing in real estate must reflect lifestyle and behavioral changes in how people like to use their space. What we have seen in the past decade is that changes are coming much faster than before. The way to keep up is through platform investing.

We first dipped our toes into this in 2011 with a retail outlet malls JV with our investor, and Italian luxury fashion retailer RDM Group, with ‘experiential retail’ in mind. To date, that platform has done very well and the assets have already started to mature.

Institutional investors are looking for scalability. They are looking for the next big theme and sectors that can be scaled over time, and provide the capital to make scalability feasible, while we utilize our expertise on the ground to get to know the trends very quickly.

Covid-19 was identified as a boost for the thematic investing. Many investors expected the long-term impact of the pandemic to further accelerate trends that support the thematic assets, such as logistics, data centers and biomedical science sectors. It is important to sense this evolution quickly.

In the drive for profit and scalability, where does ESG investing fit into private equity real estate investing?

The pandemic accelerated proptech and ESG trends. We initiated ESG policies into our repositioning process in 2014, and the pandemic simply allowed us to dig much deeper into it.

Six years ago, we were still learning about ESG. Investors, especially European ones, cared about ESG, and we decided to adapt as we want to be responsible to the community. Back then, we focused on repositioning existing assets with ESG benchmarks, but there was only so much we could do, as we needed support for such moves from the communities we were exposed to.

We always aimed to achieve green benchmarks, but there was resistance to the idea in the developer community due to higher costs. However, there are a lot more technologies now catering to it, and more people have embraced it, with policies and government regulations to support it, which gives us more viable options to achieve targets.

Some companies are exclusively dedicated to it, with some building software that is able to reduce carbon emissions, maximizing efficiency and savings. That makes following ESG guidelines more effective. In fact, over the last two to three years it has become automatic that office buildings should achieve green accreditation – such as our DUO Tower purchase in Singapore and Cityplaza One, Three & Four in Hong Kong.

ESG is not just environmental. We also have a dedicated team incorporating the social and community aspects. In our 29 community malls, we revitalized the rooftop space into multipurpose sports courts to create play space for the local community. That brings in a lot of residents to watch the sports games, which means more business for our tenants in the shopping centers.

Doing good for society will benefit foot traffic for these community malls. Even during the pandemic, we found a benefit as people stayed in their community to work from home, which meant the local malls had a lot more foot traffic. ESG initiatives also help us attract and retain quality employees while enhancing motivation and increasing productivity, which positively impacts job satisfaction.

In terms of governance, accurate and transparent financial disclosures provided by fund managers are important. Investor due diligence is thorough, and having strong corporate governance and transparency helps to instill ongoing trust.

What are the next 12 months going to bring?

First, investors and fund managers need to aim for greater alignment. They need to work together to understand each other’s needs.

Being able to work closely with so many investors from around the world has been very exciting. This is how our new platforms came about, in an attempt to match our expertise with investors’ needs and market demand.

Second, there are some obvious opportunities in the post-covid-19 world, but we can also be a contrarian. Hospitality has seen dark days through the pandemic, for example, as has retail, but we have always had exposure to those sectors and are continuing to look for good value propositions.