ASIA NEWS: Double Dragon

Launch one private equity real estate fund, you have a venture. Launch a second, you’ve got a franchise. That is the attitude at ARA Asset Management, the Singapore-based real estate fund management company best known for its listed REIT series.

Before the first half of 2011 is done, the firm with S$16.9 billion (€9.3 billion; $13.6 billion) of assets under management aims to hold a first closing for ARA Asia Dragon Fund II, which is targeting $1 billion. With these plans in mind, ARA has restructured itself to now include a private real estate funds division to sit alongside its established REITs division and its 500-staff real estate management services division.

It’s all about squeezing the last drop from the property’s valuation, and that kind of skill set complements those working on the firm’s private equity real estate funds

Vincent Yeo

The funds division is headed by chief executive officer Ng Beng Tiong, a former investment banker who previously was in charge of the first ARA Asia Dragon fund, which closed on $1.13 billion three years ago. With that fund approximately 80 percent invested in 10 properties across the office, retail and residential sectors of mainland China, Hong Kong, Singapore and Malaysia, the firm is said to be attracting commitments from both re-upped investors, many of which are US institutions, and new investors alike. PERE sources said the firm already has garnered “a couple of hundred million” dollars for the second effort.

Corporate finance manager Vincent Yeo confirmed the existence of a second fund, but he would not be drawn on ARA’s fundraising efforts. However, he underlined the firm’s intentions to become a private real estate fund franchise in its own right. “Our first milestone is to get the second fund up and running to cement ARA as a franchise,” he said. “The next milestone is to exit the first fund. There’s still a long way to go, but I think the next few years will be exciting.”

Yeo said ARA was “more or less” on track to deliver its target return of 20 percent IRR (before fees) and a 1.92x equity multiple for its first fund. Again, he would not reveal whether the follow-on fund would repeat these targets, but he noted that the firm is looking for the platform to be consistent.

Yeo described ARA’s existing REIT business as something that helps separate the firm from its peers. ARA’s ability to access both risk spectrums (the REITs have core and core-plus strategies, while the private funds are opportunistic) means it has exposure to a gamut of investment opportunities across Asia.

Notably, it also means that ARA’s private funds can sell assets to its REITs once Ng Beng and his 30-strong fund management team have finished adding value. “Of course, there are barriers to entry,” Yeo said, “but it is an option we would consider and it does offer a clean exit element.” He pointed out that any such deals are subject to approval by both the private fund’s investment committee, made up of LPs, and a minority vote from the REITs’ shareholders. In addition, two external valuations must be done and, under Singapore and Hong Kong REIT rules, the sale must be executed at the lower valuation.

Still, Yeo believes the concept is more than achievable given the similarities in management ethos between its REIT and private funds platforms. Referring to the managers of ARA’s REITs (the firm manages five in total), he said: “It’s all about squeezing the last drop from the property’s valuation, and that kind of skill set complements those working on the firm’s private equity real estate funds.”

While the REIT exit option is important, ultimately a deal executed between the divisions must benefit each division. “It needs to be a win-win for all parties,” Yeo said.

ARA at a glance



Other offices:
Hong Kong, Shanghai, Nanjing, Tianjin, Dalian,
Guangzhou, Kuala Lumpur, Malacca and Melbourne

Total staff:

Total private equity real estate professionals:

Assets under management:
S$16.9 billion, as of 31 December 2010 (REITs: S$11.4
billion; private fund assets and capital: S$5.2 billion)