The world's safe haven

Attention was already turning to the emerging markets of Asia when the credit crunch hit last summer. However now the industry has been able to quantify just how much interest there is in the region, after the investment firm, MGPA, closed the largest dedicated private equity real estate Asia fund ever on $3.9 billion (€2.5 billion).

The fund, MGPA Asia Fund III, closed with more than two-thirds of previous investors recommitting to the firm, including some of the world's largest sovereign wealth funds.

Combined with MGPA's latest Europe fund, MGPA Europe Fund III, which closed at the same time as its Asia cousin on $1.3 billion, the London-based firm now has $5.2 billion of dry powder to play with in some of the most exciting markets in the world. The two funds, which operate as separate vehicles, are collectively known as MGPA Fund III.

Alex Jeffrey, chief executive of Europe at MGPA, told PERE that with leverage the funds would be able to target up to $20 billion of deals, with the purchasing power in Asia alone set to top almost $16 billion.

The Asia fund, which is already 56 percent ($2.2 billion) committed, is now targeting opportunities in Singapore, Japan, China and Thailand across all real estate sectors. It will also look to South Korea, Malaysia, Taiwan and Australia, according to the firm.

For Jeffrey though, Asia was the real growth story of the world, saying the region was “growing faster than anywhere else.” It was, he added, a “relative safe haven” for investors as it has to date weathered the storms of the credit crunch.

In China, the firm is expected to focus on retail, and office and residential investments, while in Japan, MGPA will also look to opportunities in all sectors. In Singapore – where MGPA has committed more than $5.5 billion over the past 18 months – the firm will concentrate on developments such as their recent Marina View acquisition.

MGPA – which has now formally rebranded from Macquarie Global Property Advisors – is set to spend $2 billion building a mixed-use complex on two development sites in the artificial bay area. It bought the sites, which will play host to the Formula One Singapore Grand Prix later this year, for close to $3 billion. MGPA chief executive officer for Asia, Simon Treacy, said in press reports last month that pricing in the city would get “even better” over the next six to nine months. Office rents in particular, he argued, could rise between 10 and 25 per cent this year.

Speaking to PERE, Jeffrey said the firm was confident about achieving 2x equity multiples for investors, and opportunistic returns of 17 to 20 percent.

“If you can move quickly, the emerging [market] dislocation, and even distress, means you can pick up assets at below true value,” he said.

In Europe, MGPA Europe III will target mature markets such as France and Germany, as well as emerging markets in Central and Eastern Europe as seen in Poland, the Czech Republic and Slovakia. His top two picks in Western Europe, Jeffrey said, were France and Germany, which were offering “some very interesting real asset returns.” Countries such as Poland though were even more interesting, he added, saying there was a “real critical mass” building up with an educated workforce, growing affluence and low labor costs. In Warsaw, he said, there was “pent-up demand for really good quality real estate in the residential sector.” The key, Jeffrey said, would be targeting residential developments at the “premium mass market” level.

Both vehicles in MGPA Fund III, which attracted 65 investors in total, are expected to be fully committed within three years, and have a lifespan of nine years. Leverage would be 60 to 65 percent, and a maximum of 75 percent, Jeffrey added. MGPA closed its previous Asia and Europe funds, known as MGP Fund II, on a combined $1.3 billion in 2005, two-thirds of which was targeted towards Asian investments.

Jim Quille, MGPA chairman and chief executive officer, said in a statement that market conditions were helping the firm by ensuring less competition for deals, “especially where high levels of leverage and financial engineering were driving certain buyers. Unless you can create real value through physically improving, developing or active asset management of real estate today, opportunities are less obvious.”