Shanghai shopping spree

Morgan StanleyReal Estate Funds (MSREF) is teaming up with Indianapolis, Indiana-based retail REIT Simon Property Group and a subsidiary of Chinese government-owned investment firm Shenzhen International to develop malls in China. The consortium has already found 12 potential projects, totaling more than 8 million square feet.

Simon and MSREF will own 32.5 percent of the venture, while Shenshen will own 35 percent, according to a statement.

The projects will be between 430,000 square feet and 750,000 square feet multi-level malls in urban areas and anchored by discount retailer Wal-Mart stores. Movie theater chain Warner Theaters may also be an anchor tenant in some developments. The group will be working on projects in the Yangzte River delta, which includes cities such as Shanghai, Nanjing and Hangzhou.

The first project in the venture is a 500,000 square foot shopping center in the city of Hangzhou, with construction starting in October and an expected completion in spring 2007.

Shenzhen chairman Li Nanfeng said in a statement that the project “has a real competitive advantage within China as it brings together the key elements to successful retail property development, namely local insight and experience, a strong development and investment capability, a stable core tenant base and an outstanding management team.”

While there has been plenty of talk about China being a fertile ground for private equity real estate investors, there have been relatively few large-scale deals in the country by outside funds. But that may be changing as Morgan Stanley joins Goldman Sachs and Australia's Macquarie, who have both been active in Chinese real estate recently.

Earlier this year, Goldman paid a reported $108 million (€88 million) for a 24-story office tower in Shanghai's Huangpu district. The Pidemco Tower, which has over 41,000 square meters of office space, was purchased from publicly traded Singapore property company CapitaLand, which began developing the project in 1996.

Luxembourg-based Lend Lease Global Properties SICAF, managed by Macquarie Global Properties Advisor, purchased a 95 percent stake in Shanghai Xin Mao Property Development, which owns the 20-story Xin Mao Tower in Shanghai, for $98 million. The office tower is currently under construction in the city's Luwan district.

CapitaLand also recently acquired $130 million worth of property for residential development in Ningbo. The city will be an hourand-a-half drive from Shanghai when the Hangzhou Bay Bridge is completed in 2007.

Simon is not the only REIT looking to expand their specialty to investing in China. ProLogis, a Colorado-based REIT focusing on distribution facilities, also recently announced two pre-leased projects totaling 430,000 square feet in Guangzhou, in addition to a joint-venture that will develop a logistics park in Tianjin.

REGIONAL NEWS

Indian fund seeks $250m
Raj Vakharia, former assistant state treasurer to New Jersey governor James McGreevy, has launched a private equity fund to invest in the Indian real estate market. The fund, which is targeting $250 million (€202 million), will invest in a wide range of commercial and residential properties in the major markets in India. Vakharia told Business Line that he hopes to enter into a co-investment agreement with an Indian financial institution. Prior to working in the New Jersey state government, Vakharia was a managing director in the real estate investment banking groups of Donaldson Lufkin Jenrette and Credit Suisse First Boston. Vakharia, originally from the Gujarat region of India, moved to the US in 1976.

ING eyes Shanghai
The real estate arm of ING is close to finalizing two separate deals in Shanghai for a total price of $175 million (€142 million). According to reports from its local partner, Shanghai Forte Land, ING is reportedly working with Forte to build a $74 million high-end residential tower in Shanghai – the Chinese real estate firm is reportedly also working with Morgan Stanley on another residential project in the city. According to a Reuters report, ING is also in talks to buy the Joffre Building, a six-story retail mail on Huaihai Road, one of the city's main thoroughfares, for approximately $100 million.

Indian winery to bring in PE money
Indian wine maker Sula Vineyards, led by former Oracle executive Rajeev Samant, is reportedly in discussions with a private equity group to fund the winery's expansion. The move follows a recent ruling by the government allowing wineries to bring in foreign direct investment – two of Sula's companies, Samant Soma Wines and Nashik Vintners, recently filed applications with the Foreign Investment Promotion Board. Though India's wine market is estimated to be rather small, generating approximately Rs 300 crore ($70 million; €56 million) of revenues annually, the industry has reportedly been growing at approximately 30 percent per year.

Former Hines MD targets $300m for India
Houston-based real estate firm West University Capital is reportedly looking to raise a $300 million (€245 million) opportunity fund to buy and develop office, retail and residential properties across India. Led by former Hines managing director Raj Bhandari, the fund will target net returns of 25 percent and will utilize leverage of approximately 75 percent, generating buying power of $1.2 billion. The firm has an office in India and is reportedly in discussions with a US high-yield fund operator and an Indian private equity firm about co-sponsoring and investing in the vehicle. At Hines, Bhandari worked with Morgan Stanley and Trust Company of the West in two Indiafocused vehicles.

Carlyle closes first Asia RE fund on $410m
The Carlyle Group has raised $410 million (€337 million) for its first Asia-focused opportunity fund, Carlyle Asia Real Estate Partners. With leverage, the fund anticipates acquiring approximately $1.5 billion worth of assets across property type with a focus on China, Japan and Korea. Led by Jason Lee, Carlyle has ten real estate professionals based in Beijing, Hong Kong, Seoul, Shanghai and Tokyo. The private equity firm has already completed four deals in the region, including two office towers in Seoul, a Tokyo office building and a Japanese warehouse complex. Carlyle recently closed a US fund on $950 million. It is still in the market raising a European-focused vehicle.