On level six of Uchikanda 282 Building, an office in the Chiyoda ward of central Tokyo, sits the Japan team of private equity real estate firm Phoenix Property Investors. The four-strong team is lead by Takeshi Endo, a former executive at real estate developer Tokyo Tatemono – and the man behind more than $1.8 billion in Japanese transactions.
Despite this experience, Endo and his team have not acquired a single property for Phoenix since they invested on behalf of the Hong Kong-based firm’s third opportunity fund, Phoenix Asia Real Estate Investments III, a 2007 vintage vehicle. PERE understands they are unlikely to do so for the firm’s latest opportunity fund either.
Last month, it emerged that Phoenix had raised $400 million across multiple equity closings for its Phoenix Asia Real Estate Investments V fund, for which the firm ultimately is seeking $600 million. PERE understands that little, if any, of the capital raised for the vehicle is expected to be deployed in Japan.
Today, the 60-strong business founded in 2002 by Benjamin Lee and Samuel Chu is firmly focused on investing its capital in greater China, particularly in its home city of Hong Kong and the island of Taiwan. Indeed, a first investment in Taiwan’s capital of Taipei already has occurred.
Keen for a continuation of the success of Phoenix’s fourth fund – thought to be generating current returns that meet its 20 percent IRR and 2x equity target – institutional and high-net-worth investors from North America, Europe and the Middle East have poured into the firm’s latest offering. The capital-raising effort, assisted by placement agent Monument Group, is expected to draw to a close later this year.
Phoenix is a firm that markets itself an operator rather than a capital allocator. With more than 40 qualified architects and chartered surveyors on its books, the firm is most comfortable making equity investments into complex, value-added situations where it can use this skill base. In one example, Phoenix purchased a site containing five dilapidated buildings on Caine Road in Hong Kong in order to redevelop it into a 34-story luxury residential tower. In another example, the firm acquired land close to Taipei via a nonperforming loan for the purpose of developing resort-like homes and leisure facilities.
That said, aside from taking on debt to own the underlying property, do not expect to see Phoenix pursuing returns by engaging in financial engineering situations. According to one source familiar with the firm, it has never transacted such a deal.
That chimes with what is happening in Japan right now. Institutional investors have committed meaningful equity to real estate strategies in that country of late – but expressly to firms with strategies delving into the myriad of nonperforming real estate debt and CMBS. As predominantly equity investors, Endo and his small team are understood to be on the lookout for transactions, but essentially they are in research mode for now.
How does Phoenix keep its Japan team incentivised to stick around in the absence of doing deals? The answer lies in a shared carried interest structure, enabling them to partake in the successes of the firm elsewhere. That’s a good thing too, given the firm’s latest capital haul is earmarked for greater China.