ASIA NEWS: Runt of the litter

Russell Platt, chief executive officer of Forum Partners, was last in Australia, he joked with an industry pal how his firm had just bought the “runt of the litter.” He was referring to last month’s acquisition of a real estate investment management platform from boutique manager Viento Group.

The joke stemmed from a comparison with recent Australian platform purchases by US firms like The Blackstone Group, Morgan Stanley Real Estate Investing and LaSalle Investment Management, each of which were of a bigger size. However, the joke ends there. That is because Platt regards the acquisition as strategically ideal for what the Greenwich, Connecticut-based private equity real estate firm wants to achieve in the country.

For a nominal sum of $2 million and a commitment to inject a further $20 million of mezzanine capital into Viento’s Diversified Property Fund, Forum will inherit a vehicle controlling approximately A$110 million (€86.9 million; $113.96 million) of properties in cities such as Perth, Melbourne, Brisbane and Sydney. These he classified as “Class B- or below” – precisely the calibre of property to which firms like Forum believe they can apply their value-added skills in order to generate opportunistic returns.

Forum’s strategy is to invest in particular assets within Australia’s secondary markets to isolate individual pockets of value as opposed to taking part in large portfolio sales in prime markets, which Platt suggested was based on taking a more macro view. “A ‘B-’ is never going to be an ‘A’, but it might become an ‘A-’ or a ‘B+’ and the difference in terms of your yield and cap rate can be a couple of hundred basis points,” he said.

Forum’s investment in the Viento fund brings with it no personnel. To address that, the firm has hired a six-strong team from another boutique funds group called The Denison Group. Based in Sydney and led by chief executive officer Matt Burrows, the team will work through the assets of the fund. “His team has over a decade of experience in intensive asset management turnarounds – real role up your sleeves, fix the asset stuff,” said Platt. The team will work with Forum’s Australia director Andrew Faulk, who first identified them and Viento as a viable foray.

The second strategic catalyst behind acquiring the Viento fund and the Denison team was to provide Forum with a track record in the country with a view to impressing the country’s investors. Through the fund, the firm gets exposure to individual wealthy investors but, given Forum’s capital-raising exploits with US institutions, the hope is Australia’s equity-rich superannuation funds also could be brought into the fold.

“Australia is an enormous exporter of capital due to the strength of their superannuation scheme, and therefore it is a market where we would be well served by having investment professionals on the ground,” Platt said.

Forum’s investment was made on behalf of its Forum Asia Realty Income Fund III, which was poised to hold a final closing on $375 million at press time. Including this investment, the fund already has made six investments, bringing the amount of equity deployed past the 50 percent mark. In addition, Platt noted that the first of its investments even has been exited, generating a return “well in excess of 20 percent.”

Across Asia, Platt said Forum is experiencing yields in excess of 15 percent, not including the ‘equity upside’. “It’s an attractive market from a pricing perspective, as I’ve seen in the eight years we’ve been investing in the region,” he added. And that’s no joke.