SC Capital Partners, the Asia private equity real estate firm, has completed its first investment in Myanmar in one of the first instances of international, institutional real estate investment in the country since a civilian government replaced a military junta in 2011.
The firm founded by ex-Westbrook Partners executive Suchad Chiaranussati, which is growing a reputation making unconventional investments, has signed a 50-year lease on a parcel of land in Yangon, the former capital of the country, from a private family.
SC Capital has committed to investing approximately $25 million of equity from its latest opportunity fund, Real Estate Capital Asia Partners (RECAP) III, which closed in 2012 on $530 million, for developing a three or four star hotel on the site.
The fund received capital commitments from investors including US pensions Phoenix Employees’ Retirement System and the Fort Worth Employees’ Retirement Fund as well as City Developments, the Singaporean developer of the Kwek family, according to PERE’s Research & Analytics division. It is understood that more than $250 million from the vehicle has been invested to date.
The firm is currently in the planning stages for the hotel but expects to break ground on the development in January following which it is expected to take about two years before the hotel’s doors are opened to customers. SC Capital has already sent for requests for proposals from prospective hoteliers to operate the hotel.
Myanmar has seen little by way of investment since its government was handed over to civilian leadership making return expectations difficult to gauge. However, SC Capital is understood to be targeting a premium over conventional opportunistic returns for Asia from investments in the country, aiming for an unlevered return of between 23 percent and 25 percent with a possibility of injecting leverage at a later stage.
SC Capital is making its investment at a nascent stage in Myanmar’s economic development. According to the International Monetary Fund, its GDP growth in 2012 was an estimated 6.5 percent and this is expected to grow to 6.75 percent this year. However, it is still a country considered to be economically undeveloped – it has no stock exchange for instance. Further, several of its biggest owners of assets, typically private families, are blacklisted by a US sanctions list for alleged involvement with the country’s military junta making deal selection challenging for managers of international institutional capital. Nonetheless, SC Capital is understood to have selected a transaction benefiting from clean title.
It is the second initiative emanating from the firm to underline its pioneering credentials this month. Last week, PERE reported how SC Capital was plotting its first core real estate fund expected to be launched by early next year. In a departure from the few core real estate funds that have been launched for Asia so far, which have been structured as open-ended, the firm is planning to launch a closed-ended vehicle, similar in structure to more opportunistic vehicles.