Long Hills launches $400m China retail hybrid fund

The recently formed boutique investment firm will invest in Chinese retail properties developed and anchored by supermarkets of Beijing conglomerate BHG.

Long Hills Capital, a Hong Kong-based boutique investment firm, has launched its first real estate investment vehicle in tandem with one of China’s best-known retail-focused conglomerates, Beijing Hualian Group (BHG), PERE has learned.

The firm, formed in 2009 by David Dingmin Chang, a former CarVal Investors executive, and other former executives from firms including Ajia Partners and CBRE Global Investors, is understood to have brought to market a hybrid-structure fund called Long Hills China Retail Real Estate Fund I with a view to capturing up to $400 million from global institutional investors.

The six-year fund, with options for two one-year extensions, is to be jointly managed by Long Hills and BHG, with the latter of the two expected to seed the vehicle with both existing shopping centre developments as well as provide it with first refusal rights on various future projects.

Long Hills is aiming to attract one or two large cornerstone investors to commit $100 million each to the fund as well as a select number of mid-size investors, like fund of funds, to invest around $50 million each. In return, Long Hills expects to generate returns of about 15 percent reflecting exposure to a blend of existing projects and projects at the beginning of their development.

It is expected to deploy conservative gearing levels too. At the project level, the firm plans to cap its borrowing at a loan to value of 50 percent while, on a consolidated basis, the gearing level should not raise above 65 percent.

The fund is the latest in a string of hybrid fund structures to be brought to market in recent times. PERE understands the maiden vehicle of Long Hills was influenced by the fundraising success of SOTAN China Real Estate I, the first investment vehicle of another China focused, boutique platform called TAN-EU which last year attracted $200 million from two large institutional investors and the same again from development partner Shui On Construction and Materials (SOCAM), a company of another large Chinese conglomerate, Shui On Group.

In addition to supplying a development pipeline, believed to currently comprise about 10 developments at varying stages of completion and based across China, including in Beijing and Chengdu, BHG is expected to co-invest in the properties. In properties already well into the development process, the company has equity stakes sometimes as large as 51 percent, while for projects yet to start development, the retail giant is expected to take positions of at least 25 percent.

Neither Long Hills nor BHG would comment.