Jerry Speyer and his son Rob, the co-chief executive officers of New York-based developer-cum-fund manager Tishman Speyer, described it as a “watershed event in the evolution of China’s capital markets.” Certainly, the closing of RMB1.2 billion (€145 million; $190.6 million) in equity from Chinese investors – including a cornerstone commitment from Hwabao Trust, the Shanghai-based trust company – for its single-asset investment vehicle last month was something of a milestone.
Tishman Speyer’s fundraising, with help from Shanghai-based wealth management group Noah Holdings, claimed to be the first RMB fund to be raised by a foreign developer. The money raised will be used to fund the development of two towers totalling 1.23 million square feet of office, retail and residential space in Suzhou Industrial Park in the city’s central business district. Tishman was unavailable for further comment.
Whether Tishman Speyer is the harbinger of further RMB-denominated private equity real estate funds in the near future is uncertain. However, Goodwin Gaw, co-founder of Hong Kong-based Gaw Capital Partners, was one to predict that more partnerships between international and domestic groups using RMB capital would follow shortly.
Gaw pointed out that those groups with a reputation for development would likely receive more favourable treatment from the Chinese government than a property trading company would. “A purely buy, hold and flip investor would not be received as favourably,” he said. “The fact they are a developer makes their story more credible to the educated retail investor.”
Gaw told PERE that his firm, which has its own development division, also is considering the introduction of domestic capital so long as it does not detract from the firm’s efforts on behalf of its US dollar-denominated institutional capital sources. “If we do it, I want it to complement our main funds, which cater to institutional investors overseas,” he said.
For Gaw, partnering with Chinese trust groups is a sensible approach. “It’s how we would do it,” he said. “The manager sponsor would be in charge of putting the capital to work, and the trust company would be in charge of raising money through the retail clients it has.”
Others, however, remain unconvinced. Albert Tan, partner at the law firm of Haynes Boone, said that, while other international fund managers have been keen to “tap the RMB fund market,” there exist many reasons why they have remained predominantly faithful to traditional institutional sources of equity. “While I don’t believe this is a one-off transaction, I also believe that this will not lead to an immediate flood or rush to raise RMB funds by international players,” he added.
According to Tan, reasons including “general familiarity” with institutional capital, “the mechanics” of how it is deployed and the “certainty of responsiveness” to capital calls would keep most international fund managers favouring traditional equity sources. However, he added: “From a long-term perspective, once there are some precedents on successful methods to address the concerns, we will see more RMB-denominated real estate funds.”