Warburg Pincus is looking beyond its equity investment ways in Asia as the global private equity major announced this week that it has brought real estate credit specialist Greg Wells into its regional team as entrepreneur-in-residence (EIR) to explore and build the firm’s practice in the region’s credit markets, according to a company release on Tuesday.
The new venture, backed by Wells’ own capital alongside Warburg, represents the New York-based Warburg’s first expansion in Asia where it has traditionally pursued equity investments, rather than acting as a lender. With this partnership, the firm is betting on the growing opportunities for non-bank finance lending in Asia-Pacific.
Stepping in When Banks are Held Back
“In Asia, the real estate finance market is dominated by traditional banks that are often unable to underwrite complicated, fast-moving situations or provide a highly customized financing solution to leading real estate sponsor,” Joseph Gagnon, managing director and head of Asia Real Estate of Warburg Pincus, said in the statement. “This contrasts to the US and Europe, where there is a deep bench of debt funds and commercial mortgage REITs that fill this capital gap.”
Gagnon noted that to address this market opportunity, Warburg Pincus is “very excited to be working with Greg to build the leading pan-regional real estate credit specialist in Asia.”
Specialized in providing structured debt financing to developers, Wells has over 30 years’ experience in the real estate industry with a background in law and finance including helping to establish Morgan Stanley real estate investing in the region and building law firm Paul Hastings real estate practice in China. Geographically, Wells has expertise in Greater China, Japan and Australia.
Prior to Warburg Pincus, Wells was the managing director and head of Asia Pacific of Forum Partners for five and a half years before leaving the private equity real estate investment firm in June. The London-based real estate investment company, in contrast to Warburg’s investment approach, is known for not taking stand-alone equity positions in companies or projects. Instead it provides structured debt such as mezzanine investment or convertible bonds, that help capitalize developers or reposition them but still ensures downside protection for the investors.
Creating a Platform for Tailored Credit Deals
Through his new partnership with Warburg, Wells, who also spent time with the proprietary real estate arm of Deutsche Bank, intends to create a platform that can customize and tailor credit solutions for real estate sponsors and developers throughout the region. “The platform will be flexible and capable of providing credit in liquidity constrained special situations as well,” he said in the statement.
The pan-Asian platform, which has yet to be named, will initially focus on real estate credit financing opportunities in China and Australia, with India to be added into the mix at a later stage.
The entrepreneurial effort could come as a helping hand to China’s cash-strapped developers, who have been caught in a tightening funding squeeze as Beijing pushes forward a deleveraging campaign to reduce the country’s total debt and rein in an overheated property market. While Wells did not rule out the possibility of financing these troubled Chinese homebuilders, he was quick to add that the venture is being created irrespective of any liquidity issues today, and rather is driven by the market opportunity for non-bank credit solutions.
Growing by Acquisition
Creation of a platform takes time and in the mean time Wells will be looking to invest in or acquire existing platforms as available to add scale more quickly. “The bulk of it will be providing financing to smaller and mid-sized sponsors with assets that are more transitional in nature, for example assets that are not fully stabilized or have a higher development component,” Wells told PERE in his description of the type of products the platform would like to invest in.
Warburg Pincus earlier this month invested $181 million into Weave Co-living, the first Asia rental accommodation platform outside of mainland China. “The creation of a new real estate credit platform is a natural progression in Warburg’s investment in alternative real estate operating company,” Wells told Mingtiandi. “It’s in line with the firm’s strategy of backing growth companies.”
In 2011, Warburg Pincus co-founded mainland warehouse development and fund management platform e-Shang, which later became part of ESR, and the firm has also co-founded rental apartment developer Nova, along with other mainland real estate ventures.
Bringing Entrepreneurs In-House to Build a Business
Warburg Pincus’ EIR program provides support and financial resources to executives or entrepreneurs globally, who are looking to build a platform focused on specific market opportunities, with the ultimate objective of becoming an investor in the platform itself.
Besides Wells, the EIR programe also appointed Jay Nadler as executive-in-residence in 2016 to explore investment opportunities in information services, software and technology-enabled services. Then in 2014, Dinesh Moorjani, founder of Hatch Labs, was brought on as executive-in-residence to evaluate investment opportunities in the mobile industry while Peter Kukielski, former chief executive at ArcelorMittal Mining, was hired to explore setting up a mining company.
Warburg Pincus has more than $47 billion in private equity assets under management. The firm has invested over $4 billion in Asian real estate companies, including China’s rental housing unicorn Ziroom and the largest real estate brokerage Lianjia.