Private equity real estate funds in Asia still booming

July 28, 2008
Private equity real estate funds in Asia still booming
They raised more cash this year and helped stave off property slump
By Grace Ng

THE global financial turmoil has deflated the private equity boom in
Asia but regional real estate buy-out funds are still going strong.

Private equity real estate funds - many holding Asian assets - raised
32 per cent more cash in the first half than in the same period a
year ago.

This contrasts with Asian private equity funds, which have seen the
amount of funds raised slump 21.5 per cent in the first half of this
year to US$19.2 billion (S$26.1 billion), according to Asia Venture
Capital Journal.

Private equity funds typically invest in private companies or take
control of listed firms. Private equity real estate funds invest in
property and may get involved in development through joint ventures
with local players.

Recent data suggests that the funds are sufficiently cashed up to
keep investing in regional markets, including Singapore, and so help
stave off a severe property slump, said some analysts.

In the first five months of this year, 13 new Asia-focused private
equity property funds were set up and raised a combined US$13
billion, said research firm Private Equity Intelligence (Prequin).

For the full year, Prequin said 78 funds are looking to raise US$81
billion for Asian property investments.

Property funds were particularly active in Singapore in the first
half of last year, but the market has since quietened, noted Mr
Nicholas Mak, Knight Frank's director of research and consultancy.

The funds helped drive up prices in high-end residential property as
well as certain commercial segments. They also bought tens of units -
or even whole buildings - at bulk discount prices, said a Singapore-
based fund manager.

There had been some concern that the credit crunch and the slowing
property market here would prompt such funds to cash in their
investments, and so bring down prices further, he noted.

But these fears look unfounded as the recent fund-raising numbers
suggest that private equity real estate funds are not suffering from
a drastic drop in liquidity.

'Real estate private equity is still going pretty strong,' said Mr
Mark Pawley, chief executive of Singapore-based private equity firm
Oxley Capital. He noted that Singapore was a 'hot market last year'
for private equity players, and certain funds may still allocate
fresh funds here - albeit much less than last year.

For instance, two new Asia-focused entities - the US$3.9 billion fund
raised by Macquarie Bank unit MGPA and Keppel Land's US$1.2 billion
fund - will allocate part of their portfolios to Singapore.

Oxley Capital is still looking at some opportunities for
relatively 'small deals' in residential units here.

It will also help to grow the portfolio of the Cambridge Industrial
Trust (CIT), an industrial property Reit. Oxley has a stake in the
manager of CIT.

However, some funds may exit their Singapore investments if they have
hit their profit targets or they may shift their focus and strategy
to other markets such as Australia, Japan and Vietnam, said Mr
Pawley.

Funds are looking to snap up so-called 'distressed assets' -
properties whose prices have plummeted as their developers may have
encountered financial difficulties - in these markets, which have
been affected by a housing slump.

Kim Eng analyst Wilson Liew noted that volatile markets have prompted
some Singapore property players to raise funds from institutional
rather than retail investors.

Fraser & Neave's unit Frasers Hospitality, for instance, has said
that it is not the right time to list a real estate investment trust
(Reit). Instead, it is tying up with private equity players to buy
serviced residences.

This year, CapitaLand raised US$1 billion for its Raffles City fund
focused on property in China cities, and a further 500 million yuan
(S$100 million) for the Citic CapitaLand Business Park fund.

Other Singapore-based players involved in real estate private equity
include ARA and Pacific Star.