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Phoenix in 450% IRR Japanese exit – Exclusive

The Hong Kong-based private equity real estate firm generated the giant return from its sale of Umeda Gate Tower in Osaka, thanks to a ‘special situation’ entry, a short hold period and asset management initiatives.

Phoenix Property Investors, the Hong Kong-based private equity real estate firm, has generated a massive 450 percent IRR from a sale in Osaka on behalf of its fifth Asia opportunity firm, PERE can reveal.

The firm sold its 88 percent interest in Umeda Gate Tower, a 21-floor office building to J-REIT Activia Properties for $190 million. It owned floors five to 21 of the building.

Phoenix declined  to confirm the target-smashing return it made from the sale, however it is understood the sizeable IRR came from a combination of a short hold period – the asset was only purchased in March – and from various value-add initiatives.

The firm declined also to divulge further details of how it made the profit from its initial outlay beyond stating the original purchase was conducted off-market and that it was a “special situation” involving a “leading domestic integrated trading conglomerate”. In an announcement on the sale, Phoenix said: “The asset’s exit price is higher than that of Phoenix’s underwriting, and the exit timing is circa two years ahead of plan.”

The sale is of further significance as, while Japan is a market that has featured in Phoenix’s investment strategy over the course of opportunistic fund series, it is in Hong Kong that the firm forged its reputation. In fact, the firm made a spate of Japanese investments immediately around the time of the global financial crisis which rank as among its poorest performers, its founders Benjamin Lee and Samuel Chu said during their Blueprint interview with PERE in April 2014.

The sale of Umeda Gate was the fourth from its fifth opportunity fund, Phoenix Asia Real Estate Investments V, which was closed on $750 million at the turn of 2014, higher than its original $600 million fundraising target. In an earlier sale earlier this month, the firm sold Kwun Tong View, a 25-floor office in Kowloon for about $240 million. The buyer in that deal was ARA Prosperity REIT, a Hong Kong listed REIT managed by ARA Asset Management, the Singaporean property investment manager.

Phoenix focuses on real estate opportunities in first-tier Pan-Asian markets including Greater China, Japan, Korea as well as other Southeast Asian countries. Since its inception, Phoenix has raised approximately $2.5 billion of equity for real estate investment and development opportunities in the residential, retail, office and commercial sectors.