Last month, it emerged how a Chinese firm was altering its strategy from targeting Chinese residential developments to US property. Beijing-based Grand China Fund (GCF) launched a $100 million US dollar-denominated fund expressly for Chinese high-net-worth individuals and family offices to invest in properties across North America, and president David Long said he expected that the fundraising would be completed in August.
In an interview with PERE, Long said GCF first entered the US last July and, given the experience, he anticipated the
$100 million to be completely deployed by the end of this year. Indeed, its appetite for US real estate is so strong that the firm is even setting up a New York office, he noted.
“Overseas property investment is the next big step [for Chinese investors], and all indications are that it will be booming,” Long said. “We want to take this chance to go overseas and be the manager for their key properties.”
A force to be reckoned with
The financial firepower of Asia’s family offices and high-net-worth individuals is nothing to be sniffed at. According to research from global property services firm Jones Lang LaSalle, the combined wealth across the region is at least $6.6 trillion, a number that has increased by 27 percent since 2007. At this rate, JLL predicts that, as a group, Asia’s high net-worth individuals and family offices would overtake those from Europe by 2017 and from North America by 2024.
The commitment of Asian families to real estate already is substantial. As of 2013, they had committed 27.3 percent of their wealth to real estate altogether, compared to a 19.2 percent global average. Megan Walter, JLL’s head of research for Asia-Pacific capital markets, added that about one-third of Asia’s outbound capital going into real estate came from high-net-worth individuals and family offices.
Indeed, Robert Huthart, managing director of Hong Kong-based family office advisory firm Huthart Group, pointed out that many Asian families originally earned their wealth from real estate, and many of his clients had more than 50 percent of their holdings in property. “It is part of the Asian DNA to own real estate,” he said.
Jonathan Cheng, managing director of family office Jen Capital Advisors, added: “We don’t have an allocation target set, but we think more in the reverse: how much do we not put in real estate.”
To flip or not to flip
According to Adam Lazar, managing partner at Lazar Capital Management, the greatest difference between Asian and Western family offices is the capital gains Asian families have witnessed. Asian cities like Hong Kong have proven the capital appreciation story again and again, making Asian family offices more willing to accept low yields at the outset.
However, Asian investors cannot be said to be focused on capital gains alone, according to experts. Since family offices also take a multi-generational perspective, income sustain-ability is deemed essential.
KO Chia, director of family office Grace Financial, said families often entered into longer-term thematic strategies such as e-commerce logistics, student dormitories or senior housing. Long noted that his firm would focus on “existing buildings with stable cash flows,” as well as some single-family developments.
Yield may be an institutional side to Asian family investing, but there also is a personal side, according to experts to whom PERE spoke. After all, going abroad is not easy for family offices. Indeed, Long said many Chinese investors are “terrified” of US taxes and regulations.
What convinces Asian families to take on the risk, however, is often personal attachments. Chia noted, if children of an investor went to school in London, that is where the family most likely would buy apartments. As part of their “training,” the children may be expected to rent out several apartments.
And for some family offices in Asia, the ‘personal’ is in fact the core of their investment plan. Rather than focusing solely on financials, Chia said Grace Financial prefers to emphasize the ‘family’ side of the family office. “It’s not just the dollar sign that’s important, it’s the relationship [with partners or other family offices] that’s more important,” he added.