ASIAVIEW: Defiance on the playground

At times, fundraising for opportunistic real estate strategies can feel like sports on a school playground. As teams are picked, invariably there are a few kids nobody wants because, the last time they played, they ‘sucked’. The funny thing is some of those kids performed well the time before that.

After few meaningful capital raises for Asian real estate funds in 2012 (a total of $5.7 billion), this year has seen quite the opposite occur, particularly over the summer months. Besides The Blackstone Group’s $1.5 billion first closing for Blackstone Real estate Partners Asia, Alpha Investment Partners smashed its equity target with a $1.65 billion haul for its second Macro Trends Fund. Among China strategies, Mapletree Investments pulled in more than $1.2 billion as did Gaw Capital Partners, which hit its hard cap alongside Hong Kong neighbor CITIC Capital

Previously unfancied emerging markets and alternative asset strategies in Asia also corralled capital, including Mapletree’s Malaysia-focused fund and Lime Tree Capital’s car parks fund. Even India, a hitherto pariah market for institutional investors after disappointing first vintages, is collecting new commitments today, as Everstone Capital and Kotak Realty Funds can testify.

The summer of love, however, has not touched all fund managers. Melbourne’s APN Property Group has departed the playground, opting to take on opportunistic deals on a case-by-case basis, while Scandinavia’s SEB Asset Management and Chicago-based LaSalle Investment Management have slashed fundraising targets for their latest Asia funds. It seems that, for various reasons, investors of SEB and LaSalle haven’t fancied playing opportunistic real estate with either firm to quite the extent they once did, although both have raised some capital for their respective offerings. Still, neither would deny their disappointment that their vehicle has not taken off, unlike a growing number of their peers. 

No retreat, no surrender 

Unlike SEB, which has been vocal about its aspirations to better match the core risk profile of its European investors, LaSalle has no intentions of quitting the opportunistic space. Even though the firm has enjoyed greater success with its Japan Logistics series and on a deal-by-deal basis – this summer saw LaSalle garner $431 million in commitments for Japan Logistics Fund III and raise a further $250 million over the last 12 months for side cars and other specific mandates – its hunger to regain recognition for opportunistic deals remains unabated. 

Like the kid on the playground, however, LaSalle is going to have to do things the hard way to avoid moving further down the pecking order in the future. Having hauled an impressive $3 billion for LaSalle Asia Opportunity Fund (LAOF) III in 2007, the firm today finds itself in the unenviable position of reducing the amount of equity it is targeting for its successor fund, LaSalle Asia Opportunity Fund IV, from $750 million to $500 million after bringing aboard just $192 million in more than 18 months.

The New Jersey Division of Investment, one of LAOF III’s investors, revealed in April that a stake in the vehicle costing $62.4 million was valued at $57.6 million today, indicating an equity multiple of 0.92 percent. Sympathizers perhaps would point to the fact the fund is just a whisker away from being top quartile among funds of its vintage. Further, they might state there is time to recover all the capital and perhaps even make a dollar besides. Still, that was not enough to convince New Jersey from jettisoning its stake in the fund via a $1 billion sale of secondary positions to NorthStar Realty Finance and Goldman Sachs Asset Management.

Investors are not always the most understanding bunch if performance is poor, regardless of whether a fund was closed months before the global financial crisis or even, in the case of LaSalle, if the manager later cancelled $600 million of the fund’s commitments. It takes cold, hard results to curry fundraising favor once again. LaSalle’s success raising capital from a handful of the world’s fussiest investors for Japan Logistics Fund III is proof of that. 

“We’re in there, and we’re still viable,” one defiant senior executive at LaSalle said to PERE about LAOF IV. “For certain investors, do we have to post numbers again that really show we can consistently outperform? Yes, we do.” That executive believes the LAOF series is a brand that carries the requisite credentials to capture investor enthusiasm once again. From what PERE hears from at least two separate sources, the first $180 million invested on behalf of LAOF IV in a seed portfolio of deals in China and Japan already has impressed the few investors still in there. The investments are said to be income-producing already and were bought at attractive discounts to market value.

“I’ve told our guys that the important thing is we are still in the game,” the executive said. “Whatever we raise, let’s knock the cover off the ball. Then, let’s see on Fund V.” That, of course, will be the litmus test to see whether LaSalle gets to be among the first picks on the playground once again.