After Western capital markets dried up following the start of the global financial crisis, many real estate investment managers in North America and Europe took to boarding more planes to Asia in an effort to lure new institutions into their vehicles. Airport lounges in Hong Kong, Singapore and Seoul still are busy with these executives but, rather than fleetingly visit these locations, some managers are now taking a different, more permanent approach.
In the last two months, Rockspring Property Investment Managers, a London-based firm, and Corestate Capital, a Zug, Switzerland-based firm, have established representative offices in Seoul and Singapore, respectively. Cornerstone Real Estate Advisors, a Hartford, Connecticut-based firm, took serviced office space in Tokyo for a similar function last September. All three firms are looking to cosy up to Asia’s equity sources to supplement their fundraising efforts for investments back home.
It is easy to see why. DTZ revealed in its annual Great Wall of Money report at the end of last year how there would be $35 billion in available equity coming from the region in 2013. According to PERE’s Research and Analytics research division, that amount would be enough to satisfy the equity targets for all the value-added and opportunity funds currently targeting North America and Europe, as of May.
Unsurprisingly, Kathryn Dixon, partner and global head of investor relations at Rockspring, described the establishment of a representative office in Seoul – close to arguably the firm’s most-important investor, the
National Pension Service (NPS) of Korea – as “Rockspring’s top priority.” In September 2009, NPS selected Rockspring for a non-discretionary mandate to invest its capital into core offices in central London as part of a $3 billion push into foreign property. Successes led to a further $400 million committed to the firm in September 2010 for offices across Europe and commitments to Rockspring’s value-added TransEuropean fund series. The firm’s investment in an office and in Julianne Cho, a client servicing representative, was a small expense relative to business past, present and hopefully future with NPS and other Korean investors.
How much firms are paying for what is effectively a local liaison service depends largely on the number of staff and the city. Ralph Winter, founder of Corestate Capital, said an office and two staff, the prerequisite operating licences and other ancillary costs should set his firm back approximately $600,000 per year. That is pocket change compared to the $300 million to $400 million he is expecting to raise from Asian investors over the coming 12 to 24 months. “We see the growth happening in Asia, and that means a lot of equity will be coming from here,” he said.
Winter revealed that about 20 percent of the capital raised by Corestate since its founding in 2006 has come from Asia. Rather than periodic visits to the region, he believes investors would appreciate a permanent presence. Nonetheless, he still intends to frequent the region personally with a particular view to engaging what he termed “semi-institutional” and high-net-worth investors. “There are millionaires made here every day,” he said, “and these guys are making their money based on much higher risks than what we can offer them in Europe.”
Corestate inherited its office space in Singapore from another business venture involving Winter, so he sees his firm’s bill, borne by its balance sheet, primarily as staff. In a difference from Rockspring’s approach, however, Corestate’s Singaporean executives eventually will be required to help formulate an investment strategy for the firm to invest in Asia as well as Europe.
Cornerstone also has designs on investing capital in the region, as well as extracting capital from it. For now, though, the office opened in Tokyo last September with the hires of directors Kelly Hayes and Peter Gensheimer from Savills is expressly for servicing and growing its Asian investor base. To date, Cornerstone has raised approximately $1 billion in equity from Japanese, Chinese and Korea institutional investors, reflecting less than 5 percent of its total equity raised, mainly on behalf of its US-focused real estate equity and debt strategies.
Graham Bond, Cornerstone’s managing director of business development, noted that the opening of the Tokyo office actually was opportunistic. “Here was an opportunity to hire people hugely acquainted with the region,” he said. “Our goal for now is to expand our capabilities, primarily focused on client servicing and capital sourcing.” The cost to Cornerstone? “Anywhere between $500,000 and $1 million per year to kick-start an operation like this,” he added. For that money, Cornerstone hopes to become better accessible to the region’s larger institutions.
“It is important that one establishes a foothold with proximity, but also local language capabilities and a good understanding of the local customs and practices,” Bond said. Both Hayes and Gensheimer are American, but both have lived in Asia for more than a decade and are fluent in Japanese. It is precisely this longevity in the region upon which Western firms are pegging their hopes of attracting capital from the coffers of Asia’s premiere institutions.