Grand China Fund makes rare US property investment

Beijing-based private equity real estate firm Grand China Fund (GCF) has made its second investment in US real estate in a further sign that rich Chinese individuals are embracing multi-asset investment funds overseas. 

GCF has teamed up with New York-based Gaia Real Estate Investments to buy Whispering Winds, a 286-unit apartment community in a suburb of Houston, according to a joint statement.

The investment constitutes something of a departure from how Chinese high net worth individuals invest in real estate funds. Typically rich Chinese investors have bought into single-asset, domestic funds where the emphasis is on predetermined properties versus the notional investing strategy of a blind, multi-asset fund.

David Long, president of Grand China Fund, told PERE that the investment in Whispering Winds was approximately $24 million, made on an 80:20 basis – GCF contributed 80 percent of the equity, and Gaia committed the remaining 20 percent. Gaia will be the operating partner of the 257,400 square foot residential property.

The deal price includes 70 percent leverage, and GCF is hoping for an approximately 1.6x to 1.7x equity multiple on this investment after three to five years. Long added that the deal comes out of GCF’s Grand China Cayman Investors fund, a $60 million fund with a mandate to invest abroad.

“Chinese outbound investment is in its early stages and investors only want to buy something that’s tangible,” Long said about Chinese investor attitudes to property investments. Nonetheless, he said Chinese investors are particularly attracted to the steady returns of the US real estate market.

Set up in October of last year, the fund’s LPs are comprised entirely of Chinese investors, mostly high net-worth individuals. This is Grand China Cayman Investors’ second acquisition in the US and it still has $47 million of dry powder left to be invested, Long said.

On a larger scale, in recent months Chinese investors have been snapping up US real estate as prices begin to recover. Last month, one of the buyers of Goldman Sachs and Meraas Capital’s $1.4 billion dollar stake in New York’s General Motor’s Building was China tycoon Zhang Xin, according to local media reports.

In May, the $3.3 trillion Chinese sovereign wealth fund State Administration of Foreign Exchange (SAFE) set up another New York office to look into alternatives investment in the US – particularly real estate and private equity.

To date, however, Chinese private equity funds have been slow to break into US real estate, mostly because the concept of outbound investment is new to Chinese investors. The Whispering Winds deal will be one of the first involving a Chinese private equity fund, Long said, adding that he foresaw a growing trend of Chinese investors allocating more money to offshore real estate investments. Accordingly, he predicted other Chinese private equity real estate funds will follow GCF’s lead.

Grand China Fund was founded in 2010 to focus solely on residential property investment in China. Including its US dollar and RMB platforms, Grand China Fund has $600 million of assets under management. Besides the Grand China Cayman Investors fund, GCF has also raised over 15 single-asset RMB funds, Long said – a typical investing model for retail investors in Chinese property fund.