China Life Takes 95% Stake in $950M US Real Estate Portfolio

Leading mainland insurer China Life is taking a 95 percent stake in a portfolio of US logistics and manufacturing centres, business parks and healthcare facilities valued at nearly $1 billion, as the Chinese giant continues to show a taste for platform deals.

China Life Insurance Co has agreed to provide financing to recapitalise a net lease portfolio held by a fund managed by ElmTree Funds by forming a joint venture with the private equity group, according to an announcement this week by the US-based firm.

The deal would value the joint venture at $950 million, with China Life acquiring 95 percent and Elmtree retaining 5 percent of the entity, according to an account in The Wall Street Journal. Some 60 percent of the recapitalisation is said to come in the form of new borrowing against the portfolio by the joint venture. That debt is being packaged into CMBS which are to be marketed by a syndicate led by JP Morgan Chase, according to the Journal story.

ElmTree Funds was assisted in the transaction by boutique real estate advisory firm Hodes Weill Securities, which acted as the exclusive financial advisor to the private equity firm.

The transaction marks the third time in the last two years that China Life, which dwarfs rival Anbang Insurance, has opted to invest in a fleet of no-name US properties, rather than pursuing a trophy deal.

48 Assets in 20 States, Including in Some Cities You’ve Never Heard Of

“This transaction gives China Life immediate scale and diversification in the U.S. market,” said Jim Koman, managing principal at ElmTree Funds. “We look forward to a highly productive, long-term relationship with China Life as we explore additional opportunities to invest together.”

The joint venture’s portfolio initially comprises 48 single-tenant properties aggregating more than 5.5 million square feet (511,000 square metres) across 20 states. The transaction agreement provides for the potential acquisition of two additional single-tenant net lease properties from ElmTree Net Lease Fund II, according to the statement by Elmtree.

Among the most recent additions to the set of properties are a 188,000 square foot office building leased to an automotive supplier in Michigan; a 38,000 square foot medical clinic facility in Phoenix, Arizona; a 276,000 square foot refrigerated medical storage facility in Detroit, Michigan; and 306,406 square foot manufacturing facility leased to General Electric in Lafayette, Indiana.

All four of these properties were built in 2014 or 2015, and many of the assets in the portfolio were developed on a build-to-suit basis with Elmtree having entered into forward commitments to purchase the properties upon completion.

Under the terms of the agreement, ElmTree Funds will continue to serve as asset manager of the portfolio.

The investment comes despite capital controls that have slowed down investments in many sectors, but have had a more limited impact on the real estate sector. While global investment into US commercial real estate has slid by 39 percent since 2009, Chinese investments in US commercial assets grew by 10 percent in the 12 months that ended March 30^th, compared to the previous 12 months, according to data from Real Capital Analytics.

China Life Likes Its Platforms

China Life’s partnership with ElmTree funds comes just six months after the insurer led a mainland consortium in buying a $2 billion stake in a $3 billion portfolio of budget hospitality properties managed by Starwood Capital.

In November 2015, China Life also chose to invest in a set of industrial assets, when it paid $1 billion for a 30 percent stake in a portfolio of US warehouses acquired by Singapore’s Global Logistic Properties (GLP). That investment followed a $2.35 billion investment by China Life, private equity firm Hopu Funds and CIC into GLP’s China operation.

Not all of the insurer’s US-bound capital has been sent into widely distributed packages, however, with China Life last year backing Scott Rechler’s RXR Realty in acquiring 1285 Sixth Avenue in Manhattan for $1.65 billion.

China Life also placed a bet on the US commercial and residential markets through a 2015 investment in Boston. China Life and mainland competitor Ping An have each put $167 million into Tishman Speyers’s $500 million Pier 4 mixed use development, which is slated to include 100 homes and 13 floors of office space along the US city’s waterfront.