ASIA NEWS: Voting for progress

Expect to hear much more about Invesco Real Estate in Asia private equity real estate circles going forward. The property fund management division of Atlanta-based Invesco has led a pretty discreet existence in the region since setting up an office in Hong Kong in 2006 via the appointment of Cheng-Soon Lau from Ayala International. But its acquisition of AIG Global Real Estate’s fund and asset management business, confirmed in its fourth quarter report published at the end of January, added another $5.4 billion to its existing $27.9 billion global portfolio, of which only about $500 million was previously in Asia.

The deal was reported to have cost Invesco “tens of millions” of dollars. However, included in the acquisition price, Invesco is understood to have inherited AIG’s equity positions, believed to have come predominately from its balance sheet and accounting for up to 20 percent of each vehicle’s equity. In addition, Invesco has taken on 65 AIG staff members who had operated from offices in Hong Kong, Seoul, Shanghai, Singapore and Tokyo. Critical mass in Asia achieved in one fell swoop, you might say.

Key to the successful takeover was the majority approval of the LPs of AIG’s largely uninvested opportunity fund, Asia Real Estate Partners (AREP) II, which closed on $740 million of equity in September 2008. An investor pool that included US pension fund San Diego City Employees Retirement System, the National Pension Service of Korea and the investment office of the Kwok family – the family behind Hong Kong real estate business Sun Hung Kai Properties – is understood to have approved the takeover at the end of last year.

We weren’t in a very good position before, so we voted for them to take over. If we don’t vote for them to invest the capital, we won’t be in a very good position again

An AIG Real Estate LP

In addition to AREP II, Invesco is believed to have inherited fee streams from four investment vehicles raised between 2005 and 2006 that have been fully invested. These included: AIG Japan Real Estate Value Added II and AIG Japan Real Estate Value Added III, a pair of Japan-focused, value-added vehicles launched in 2005 and 2006 that closed on ¥30 billion (€267 million; $364 million) and ¥52.6 billion of equity, respectively; and two Japanese separate account programmes targeting core-plus real estate called Prime Property Programme I and II, which closed in 2005 and 2006 and raised ¥100 billion between them. Not included in the sale was the AIG Real Estate Opportunity India LP, a development-focused fund targeting a spread of sectors across India that held a final closing of $282 million in June 2008.

The LPs of AREP II have voted for a new sponsor, but there is another decision for them to make. They need to decide whether to vote affirmatively on extending the investment period of the fund, which is due to expire this year.

According to one of the fund’s LPs, who PERE spoke to last month, a positive vote is likely. “The fund closed in 2008, so they would need to put out a lot of capital very soon if we don’t vote for an extension,” the LP said. “We weren’t in a very good position before, so we voted for them to take over. If we don’t vote for them to invest the capital, we won’t be in a very good position again.”

The arrival of Invesco as an investing force in Asia did prompt some rival GPs to highlight the challenge that lies ahead for Invesco. “The challenge when you do a transaction like that is to stabilise the platform and then convince the investors you are a viable longer-term player,” the rival GP said. “Extending the fund is one thing; the real acid test is getting those LPs to commit to a new vehicle. That’s when GPs find out what level of support they really have.”

Market commentators said the platform must make shrewd investments, having sat on the market’s sidelines for the better part of two years, although it recently did dip back into the market. In August, as the corporate transaction with Invesco was being determined, AIG acquired the Samsung Bundong Plaza office building in Seoul from Morgan Stanley Real Estate Investing for $101.5 million. The deal was struck somewhat opportunistically as Morgan Stanley sought to pull the plug on its Korean operations.

Under Invesco’s management, and with renewed support, the former AIG business can once again deploy capital. Whether its deployment is successful will be signified by repeat commitments from the investors that are likely to give it another chance now that new sponsorship is in place.