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Much of the global credit crunch's effects on Asian economies have been reflected in the public markets. The fact that it seems to have disproportionately affected real estate equities may be of concern to property investors. By Dave Keating

Much has been made recently over whether the Asian economies will be able to ride out a global economic slowdown. So far the effects have been felt largely in the public markets, with concerns over the deepening US subprime meltdown sending Asian stocks on a rollercoaster ride over the past several months.

For private property fund investors, the tribulations of the public markets might seem like a peripheral concern. But across the Asian markets, much of the turbulence has seemed to disproportionately affect real estate companies and real estate investment trusts (REITs). This could have a significant affect on exit opportunities as well as risk appetite.

In India, for example, the market's recent fluctuations had one very high-profile casualty. Shortly after the Sensex experienced the biggest one-day drop in the 133-year history of the Bombay Stock Exchange on January 21, Emmar MGF, a real estate joint venture between Dubai-based Emaar Properties and India-based MGF Development, withdrew its planned IPO after the company failed to attract complete subscription. That withdrawal sent shock waves through the market, with many fearing that the public real estate company's trouble would affect valuations across the board. Already people are reporting seeing pressure on land valuations as well as on fundraising.

The poor performance for public real estate companies in India is being watched especially closely because the country is considering introducing a REIT framework. No doubt Indian authorities are also eyeing the performance of REITs in Japan. In the Pacific, the REITs of East Asia have also stumbled a bit in the face of the US subprime crisis. In Japan, where the creation of so-called J-REITS is credited with turning the Japanese real estate market into a financial product and raising real estate values, the recent wavering of these property mutual funds has caused some unease in the real estate market. Although their risk should be lower than the risk of stocks, the Nikkei reports the price volatility of REITs has surpassed that of stocks in the past year. This year the Tokyo Stock Exchange REIT index has dropped 16 percent, and it's fallen 40 percent from its peak last May. According to Bloomberg, 26 of the 42 listed property trusts in Japan were trading below their initial public offering price in April. In an interview last month with PERE, Carlyle's head of Asian real estate Jason Lee said that if this setback were to continue it would put pressure on yields and liquidity would suffer. After all, the J-REITs established a yield framework for Japanese real estate, and if that starts to crumble it would affect real estate in the country across the board.

This drop has been mirrored elsewhere in Asia. Australia's S&P/ASX 200 Property Trust Index has fallen 27 percent since December. There has been speculation in both countries that institutional investors may take advantage of these lows and do some REIT bargain-hunting in the coming months.

There are signs that Asian REIT yields will come back to their previous levels. Peter Barge, chief executive officer for Asia at Jones Lang LaSalle, told Bloomberg television in April that the firm expects them to rebound. But the fact that public real estate equities have been so spooked by the US subprime crisis will be closely watched by other Asian countries considering REIT programs such as China and India.

The most immediate effect of the public market troubles across the board will be that developers who were looking toward IPOs in the near future are now likely to delay such offerings. In Japan, firms that were planning a future exit through a REIT formation will have to watch the situation closely to see if it changes. In India, any thoughts about listing an acquired development company or forming a REIT in the future if the legislation goes forward will have to be weighed against the experience of the past few months. And in China, where the government has previously suggested it may just be one or two years away from REIT legislation, investors will have to watch to see if that timeline is tempered by the recent J-REIT troubles.

The resilience of the Asian real estate market is sure to be tested in 2008, and this may be especially true for public real estate companies and funds. Though most analysts are predicting that J-REIT yields will go back to normal, and India's public real estate companies will remain stable after a needed correction, it is interesting to note the degree to which public market real estate was jolted by events abroad.

ING hires Dick Popken for Asia
ING Real Estate Select, the global multi-fund management business of ING, has headhunted Dick Popken as its new head of fund management in Asia. Popken, who is currently senior portfolio manager for real estate, Asia Pacific at PGGM Investments in Zeist, The Netherlands, is joining ING in June. The new PGGM hire has experience spanning private real estate investments, listed securities, structured products and CMBS from China to New Zealand and from Japan to India, according to Nicholas Cooper, chief executive of ING Real Estate Select. Popken launched the Asia Pacific real estate investment business at PGGM. During his stewardship the program grew to a current portfolio size of around €3 billion.

Korean pension to double overseas RE investments
South Korea's National Pension Service, the world's fifth-largest pension fund, has set aside 800 billion won ($806.8 million; €507 million) for overseas property investment, according to Reuters news service. Kwag Dae-whan, who leads the pension's overseas investment service, said that the pension was targeting opportunities in the US and elsewhere in the West as property prices fall. He said that the fund would double its 2007 investment in overseas real estate assets. The fund began making foreign property purchases in 2006 through real estate funds. It has also directly purchased office and commercial buildings, logistics centers and senior centers.

Doran to raise $600m fund this year
Doran Capital Partners, a South Korea-focused firm founded in 2002 by Pietro Doran, is planning to raise a $600 million (€377 million) fund to follow its initial $210 million vehicle, according to the founder. Doran said the firm's first vehicle, Triseas I, was nearly all invested. The new fund would be called Triseas II. It would be a seven-year fund and would have its first close in June. Investors in the vehicle would likely come from Europe, the US and Australia. It would target 15 percent returns, Doran added. The new fund would undertake the same strategy as the first fund, he said, refurbishing exiting assets. The fund would likely have a major focus on retail.

Gresham to buy transport, logistics businesses
Gresham Private Equity, the private equity arm of Gresham Investment House, is set to buy five unnamed logistics and transportation businesses in Australia with an enterprise value of A$200 million ($185 million; €117 million) including A$130 million of debt. Roy McKelvie, chief executive officer and managing director at Gresham Private Equity, said the investments were being made in companies that engaged in a mixture of activities such as long-distance line haul, wharf and port services, warehousing and logistics management, but declined to disclose their names. The investment was made from Gresham's second fund that closed in 2004 and was “pretty much” fully deployed, said McKelvie.