In a region that has not seen a significant number of institutional investor-backed entrepreneurial real estate ventures over the past few years, last month was especially noteworthy.
In the span of a week, Warburg Pincus, the New York-based private equity firm focused on growth investing, announced its commitment to two new sector-specific platforms led by prominent industry executives in Asia-Pacific.
The firm made a $181 million investment for a majority stake in Weave Co-Living, a Hong Kong-based co-living rental accommodation platform set up in 2017 by Sachin Doshi, former head of Asia-Pacific private real estate at APG Asset Management.
As part of the deal, Warburg Pincus also has the option to upsize and invest up to $413.5 million into the company that develops, owns and operates co-living rental space targeting young professionals and post-graduate students. PERE understands this investment was made via its $13.4 billion global private equity vehicle, Warburg Pincus Private Equity XII. According to data from the Regents of the University of California, which invested $50 million in Fund XII, the vehicle was generating net IRRs of 4.72 percent as of December 31, 2017.
Warburg Pincus has been bullish on the multifamily sector in mainland China and other gateway cities in Asia-Pacific, given the strong demand for good quality rental accommodation. Indeed, the firm’s investment in Weave is its first backing of a rental accommodation platform outside of mainland China.
This sort of entity-level investment in operating companies is a standard Warburg Pincus investment strategy. The firm also operates a so-called ‘EIR program’ through which it provides support and financial resources to individual entrepreneurs. Days after announcing the Weave deal, the firm chose to mark its foray into the real estate credit sector in Asia-Pacific through the program. It appointed Gregory Wells, former managing director and head of Asia-Pacific at Forum Partners, as “entrepreneur-in-residence”.
As Wells told to PERE, he has been brought on board with the aim of setting up a business in the real estate credit space as an operating company, with which Warburg can then invest. While the yet-to-be-named venture is still in early stages, Wells, who left Forum Partners in June, is aiming at real estate financing opportunities in China, Australia and, eventually, India.
PERE understands the initial backing by Warburg Pincus will be for overhead costs and helping the venture leverage the firm’s existing network of relationships and resources. Eventually, however, it plans to inject capital as and when the platform grows.
Warburg Pincus has had prior working relationships with both these executives in earlier roles. APG and Warburg Pincus, for instance, are shareholders in the pan-Asia logistics specialist e-Shang Redwood. Meanwhile, Wells and Joseph Gagnon, managing director and head of Asia real estate at Warburg Pincus, have known each other for 15 years and Wells has worked on deals with the firm during his time at Forum Partners and earlier roles.
Whether these relationships blossom into fruitful collaborations remains to be seen. The ultimate litmus test of these investments will be what kinds of returns Warburg Pincus will eventually make for its investors.