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TAN-EU China club fund completes second investment

The club fund jointly managed by the Hong Kong-based private equity real estate firm and Shui On Land sister company SOCAM Development, is now approximately 40 percent invested following an outlay in Jiangning, Nanjing.

TAN-EU Capital, the Hong Kong-based private equity real estate firm, and Hong Kong-listed developer SOCAM Development, a sister company of Shui On Land, have completed a second investment on behalf of a $400 million club-fund which they closed two years ago.

On behalf of SOTAN China Real Estate I they have acquired a 65 percent interest in a 1.2 million square foot development site in Jiangning, Nanjing, from CICC, a state-owned financial institution.

Land and construction costs of the site to the fund are expected to be approximately RMB 1 billion (€120.7 million; $163.3 million), including 15 percent debt financing. The outlay from SOTAN brings the vehicle to about 40 percent invested.

The Nanjing deal follows a first investment concluded in April last year into a 1.2 million square foot, mixed-use development in Wuqing, near Tianjin. While it has taken some time for this second acquisition to come about, TAN-EU chief executive officer Rachel Tan said: “We have remained prudent about spending both SOCAM's and the LP's capital on overpriced projects when the markets soared towards Q4 of 2012 and into 2013. The investment period for SOTAN concludes in February 2015 giving TAN-EU time to deploy the remaining capital.”

The capital of SOTAN was committed 50 percent by European institutional investors and 50 percent from SOCAM’s balance sheet. The vehicle is a rare example of an opportunistic, blind pooled club-fund in which the operating partner, SOCAM, also shares the general partner responsibility. Typically, a fund manager operates as GP on its own and invests its fund’s capital into projects of various operating partners.

Tan described the location of SOTAN’s second foray as “extremely hard to come by” as the intended development plan for the site is for low density villas and townhouses and not high density residential property.

She said: “Residential sites of plot ratio below 1x with planning for villas are extremely hard to come by, since local governments across China have prohibited the launch of low-density residential sites since 2003. Because of the scarcity of supply and a strong appetite for villas as a status symbol in Nanjing and it surrounding areas, including Shanghai, demand for this type of residential product is extremely strong.”