Grand China to channel Chinese money into US

Beijing-based property firm Grand China Fund (GCF) is set to switch its focus from domestic Chinese investment to bringing outbound Chinese institutional capital to the US, and is hoping to raise a $100 million fund for that strategy by August.

David Long, president of GCF, told PERE that the firm is currently setting up a New York office, and hopes to hire two or three people to oversee investments this year. “Our key priority is to enter the US with our own money and build a track record,” he said.

Last July, GCF already started that process by teaming up with New York-based Gaia Real Estate Investments to buy Whispering Winds, a 286-unit apartment community in a suburb of Houston, for $24 million. The deal came out of GCF’s Grand China Cayman Investors fund, a $60 million fund with a mandate to invest abroad. The firm is hoping for an approximately 1.6x to 1.7x equity multiple after three to five years.

Now, GCF is planning to raise another $100 million for a separate fund following a similar strategy. Investors in the fund are expected to be Chinese high net-worth individuals and some institutions, all with overseas assets to commit to the US dollar-denominated fund. Long expected the fundraising would be finished by August, and also said GCF should finish investing the new fund’s capital by the end of this year.

“Overseas property investment is the next big step [for Chinese investors], and all indications are that it will be booming,” Long said. “We want to take this chance to go overseas and be the manager for their key properties.”

This firm is expected to focus on existing properties that have a stable cash flow as well as some single family developments like Whispering Winds, Long added. He said that was because those are the assets Chinese investors are most comfortable with at this point. Long still said he expected a long process of education for Chinese investors to understand the tax systems and controls they receive in US property investment.

In the meantime, GCF is not expected to slow down its China business, which has RMB5 billion (€582 million; $803 million) in funds under management. In the last few years, however, Long said the firm has mostly been focusing on financing for developers and, accordingly, has reduced its return requirements.

GCF is among a number of private equity real estate firms to switch its focus from Chinese investment to taking Chinese investor capital into overseas property. In a recent, higher profile example, last month Harvest Real Estate Investments (HREI), the joint venture platform formed two years ago by asset managers London-based Grosvenor Fund Management and Beijing-based Harvest Fund Management, halted its Chinese investments to switch to advising Chinese investors on making real estate investments overseas.

Asian high net-worth and family office capital exploring ways to enter the US property market will be one of the topics discussed at the PERE Family Office and Private Investor Forum in Hong Kong on May 14.