China has become the leading emerging market opportunity in the eyes of overseas investors in a move billed as “unprecedented” by Harvest Capital Partners chief executive officer Rong Ren.
Speaking to PERE at the 2009 ULI fall conference in San Francisco, Reng said one of the “biggest surprises” he had seen was the increasing appetite for Chinese real estate.
He argued that opportunities in China had always been classed alongside other emerging markets such as India, Korea, Russia and Brazil. However, there had been “an obvious change” in investor appetite of late, particularly from overseas investors.
Although US investors had been “badly burned” over the past year, with many “still waiting” to invest new capital into new opportunities, Reng said: “I never expected China to move into the spotlight like it has. It has been one of the biggest surprises for me.” Opportunities in China have been a key feature of several panels at the ULI conference this week.
Reng added though that investors should look to China as a “long-term” opportunity not a “trading strategy or [one that relies on] high leverage. That model doesn’t work in China.”
He said investors had to pinpoint which markets in China they wanted to invest in, just as they would in the US. “You cannot cover every single geography in every market.”
He also said getting a local manager and operating partnerships right was crucial to success in China. ”Over and over again people say it’s about finding the right partner but that’s the wrong concept to have. It’s about the alignment of interest with your partner and how you add value to each other.”
Harvest raised approximately $400 million for its debut fund, the China Real Estate Opportunistic Fund, and last month completed two exits from the vehicle, including a serviced apartment development in the Wanchai area of Hong Kong and a mixed-use asset in Suzhou, south of Shanghai for $75 million and $52 million respectively.