ASIA NEWS: Pacific choice

Equity raising for new opportunity real estate funds in 2009 will be rare, particularly in the first half of the year, as LPs evaluate their exposure to the asset class.

However, that sombre mood has not stopped Singapore-based Pacific Star from knocking on doors once again as it markets two property funds.

The firm, which has more than $4 billion assets under management in Asia, is putting the finishing touches on the Asia Fund Select – an open-ended vehicle targeting $1 billion by 2010. The firm, which counts Germany's Ergo Insurance Group, France's Société Génerale, Kuwait Finance House and Qatar Investment Authority among its investors, plans to raise up to $300 million by the summer.

That fund hit the marketing trail late last year and has now been joined by a new real estate fund: the pan Asian Enterprise Property Investment Corporation.

Pacific Star aims to raise $500 million for the fund, again by 2010, with a first closing planned before the end of the first half this year. According to a private placement memorandum seen by PERE the closed-ended fund will target special situations and entity level investments in real estate companies, particularly those struggling to secure credit.

“Investment targets can include a broad range of property classes and types and the strategy will involve investing in any part of an investment target's capital structure via various investments (i.e. mezzanine, convertible bonds, preferred equity, straight equity) in order to achieve superior risk-adjusted returns through capital gains and operating income,” the document said.

The fund will be run by a dedicated team, including former Rodamco executive Nico Kop.

Opportunistic investors are being offered target IRRs of more than 20 percent after fees, with the fund planning to exit its investments through the IPO market following a three or four-year hold period or through the sale of assets. The fund has a life of six years.

If investors are not wooed by the proposition of investing in companies which need their finances bridged, Pacific Star hopes they might be enticed by the 15 percent IRR's being targeted by the open-ended fund, Asia Fund Select.

Pacific Star Europe principal Dirk Grosse-Woerdemann told PERE the firm saw a narrowing of spreads between core and opportunistic risk and, as such, would invest a significant proportion of its equity in core assets in core markets. The Asia Fund Select, he added, was targeting assets being sold at discount by distressed sellers rather than trying to achieve opportunistic style returns through riskier development projects.

“There are opportunities in Asia's core markets which have seen an increase in portfolio refinancing and available distressed assets. As a result, yields are getting higher,” Grosse-Woerdemann said. “It has become hard to find an adequate partner with the financial structure to see developments through the initial phase. This fund will not carry developers through development risk.”