A partnership built on mutual trust is even more essential to real estate investment in China than elsewhere in the world, and operations in the country are virtually impossible without it, panelists underlined at the PERE Forum: China 2013 in Beijing.
When investing into China, both institutional investors and fund managers often have to partner local developers – a partnership that can often be “painful,” especially when their interests are not always aligned, TAN-EU Capital chief executive Rachel Renucci-Tan insisted on the developer’s perspective panel.
TAN-EU has recently been in the midst of a restructuring of the largest real estate opportunity fund raised to date in China by Hong Kong-based firm Winnington Capital after the firm and its development partner Shui On Land fell out over various elements including spiraling costs and development delays. Advising Shui On Land, the firm is understood to have played an important role in brokering a resolution for the $1 billion fund. Catch PERE’s special report in this month’s issue to learn more.
Although a commonly-determined point, speakers at the one-day event underscored that one could not invest in China without “the right partner,” and that finding such a partner often took time and effort. Richard Vogel, president of development and investment firm Silverstein Properties in China, said that the leadership and culture of the Chinese partner have to be “completely aligned” with the investors, the two have to view the risks and potential solutions the same way, and they must not mistrust one another.
“It’s all about getting to know each other,” he said on the developer’s panel.
To that end, the Canadian Pension Plan Investment Board (CPPIB) set up its first international office in Hong Kong in 2008, because the institutional investor realized that joint venture partnership with firms effectively on the other side of the world to it simply wouldn’t work.
“The resourcing on the ground is important, because we need to be able to be responsive,” CPPIB Asia director for real estate investments Guy Fulton said on the institutional investors panel. “If issues come up, the partner needs to know he can get you on the phone.”
Dutch pension fund asset manager Algemene Pensioen Groep (APG) places the same importance on the right partner because the firm’s commitments are often quite long-term. The last thing it wants is to enter into a partnership and encounter conflicts over something like liquidity expectations six years down the line, said Bradley Fu, portfolio manager for APG Investment Asia.
Silverstein’s Vogel, who has worked as both an investor and a developer, said the trust of the relationship must go both ways: the investor has to be able to rely on the developer’s local knowledge, and the developer also has to trust that the investor won’t just walk out on them. If that trust is there, however, the process may be painful to make work, but the investment will be successful, he said.
“I would take the best partner over the best site any day,” he said.